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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47506
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LOGO FELCOR LODGING LIMITED PARTNERSHIP
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OFFER TO EXCHANGE
ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2008
($400,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR REGISTERED 9 1/2% SENIOR NOTES DUE 2008
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We are offering to exchange all of our $400 million in outstanding 9 1/2% Senior
Notes Due 2008 ("Old Notes") for $400 million in registered 9 1/2% Senior Notes
Due 2008 ("New Notes"). The Old Notes and New Notes are collectively referred to
as the "Notes." The Old Notes were issued on September 15, 2000. The terms of
the New Notes are identical to the terms of the Old Notes except that the New
Notes are registered under the Securities Act of 1933, as amended, and therefore
are freely transferable, subject to certain conditions.
You should consider the following:
- INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 16
OF THIS PROSPECTUS.
- Our offer to exchange Old Notes for New Notes will be open until 5:00 p.m.,
New York City time, on November 30, 2000, unless we extend the offer.
- You should also carefully review the procedures for tendering the Old Notes
beginning on page 25 of this prospectus.
- If you fail to tender your Old Notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected.
- No public market currently exists for the Notes. We do not intend to list the
New Notes on any securities exchange and, therefore, no active public market
is anticipated.
Information about the Notes:
- The Notes will mature on September 15, 2008.
- We will pay interest on the Notes semi-annually on March 15 and September 15
of each year, beginning March 15, 2001 at the rate of 9 1/2% per annum.
- We may redeem the Notes on or after September 15, 2004 at certain rates set
forth on page 92 of this prospectus.
- We also have the option until September 15, 2003, to redeem up to 35% of the
original aggregate principal amount of the Notes with the net proceeds of
certain equity offerings.
- The Notes are unsecured obligations and rank equally with our existing and
future unsecured senior debt.
- The Notes are fully and unconditionally guaranteed on an unsecured senior
basis by FelCor Lodging Trust Incorporated and by certain of our subsidiaries.
- If we undergo a change of control or sell certain of our assets, we may be
required to offer to purchase Notes from you.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 27, 2000
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 16
The Exchange Offer.......................................... 25
Capitalization.............................................. 35
Selected Historical and Pro Forma Financial Information..... 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 40
Business and Properties..................................... 59
Management.................................................. 78
Certain Relationships and Related Transactions.............. 84
Description of Certain Indebtedness......................... 86
Description of the New Notes and Guarantees................. 91
Certain United States Federal Income Tax Considerations..... 129
Plan of Distribution........................................ 129
Legal Matters............................................... 130
Experts..................................................... 130
Index to Financial Statements............................... F-1
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We obtained market data and certain other industry data and forecasts used
throughout this prospectus from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that they obtain their information from sources they believe to be
reliable, but they do not guarantee the accuracy and completeness of such
information. Similarly, while we believe that the internal surveys, industry
data and forecasts and market research are reliable, we have not independently
verified such data, and neither FelCor LP nor FelCor make any representation as
to the accuracy of such information.
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This prospectus contains registered trademarks owned or licensed by
companies other than the Company, including but not limited to Bristol House(R),
Club Hotels by Doubletree(R), Conrad International(R), Courtyard by Marriott(R),
Crowne Plaza(R), Disney(R), Doubletree(R), Doubletree Guest Suites(R), Embassy
Suites(R), Fairfield Inn(R), Four Points by Sheraton(R), Hampton Inn(R), Hampton
Inn & Suites(R), Harrison Conference Centers(R), Harvey Hotel(R), Hilton(R),
Hilton Garden Inn(R), Hilton HHonors(R), Holiday Inn(R), Holiday Inn Express(R),
Holiday Inn Select(R), Homewood Suites(R) by Hilton, Inter-Continental(R),
Radisson(R), Red Lion Hotels & Inns(R), Sheraton(R), Sheraton Suites(R), Walt
Disney World(R) and Westin(R).
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FORWARD-LOOKING STATEMENTS
The information contained in this prospectus contains forward-looking
statements that involve a number of risks and uncertainties. Forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "anticipates," "may," "will," "should," "seeks," "pro
forma" or other variations thereof (including their use in the negative), or by
discussions of strategies, plans or intentions. A number of factors could cause
results to differ materially from those anticipated by such forward-looking
statements. Among these factors are:
- overall debt levels and the ability to obtain new financing and service
debt;
- inability to retain earnings;
- liquidity and capital expenditures;
- price and number of FelCor equity securities repurchased;
- growth strategy and acquisition activities;
- inability to reach definitive agreements for the acquisition of the
lessees of, or of the leases covering, our hotels;
- competitive conditions in the lodging industry; and
- general economic conditions.
In addition, such forward-looking statements are necessarily dependent upon
assumptions and estimates that may prove to be incorrect. Accordingly, while we
believe that the plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we cannot assure you that such plans,
intentions or expectations will be achieved. The information contained in this
prospectus and in the other documents referenced herein, including "Risk
Factors," identifies important factors that could cause such differences.
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WHERE YOU CAN FIND MORE INFORMATION
Both FelCor and FelCor LP file annual, quarterly and special reports, proxy
statements and other information with the SEC. Our SEC filings are available to
the public from the SEC's web site at "http://www.sec.gov" and from our web site
at "http://www.felcor.com." You may also read and copy any document we file with
the SEC at its public reference facilities at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at 7 World Trade Center, Suite 1300, New York, New York
10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You can also obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities. Our SEC filings
are also available at the office of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. For further information on obtaining copies of
our public filings at the New York Stock Exchange, you should call (212)
656-5060.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to our offering of New Notes. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information in the registration statement on Form S-4. You will find additional
information about us and the New Notes in the registration statement on Form
S-4. All statements made in this prospectus concerning the provisions of legal
documents are not necessarily complete and you should read the documents which
are filed as exhibits to the registration statement or otherwise filed by us
with the Commission.
We "incorporate by reference" into this prospectus the information that
FelCor and FelCor LP file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus
and information that we file subsequently with the SEC will automatically update
this prospectus. Both FelCor and FelCor LP have filed the following documents
with the SEC and they are incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1999, with the exception of the consolidated financial statements of FelCor
Lodging Limited Partnership, which are included in this prospectus;
(2) Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2000;
(3) Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2000;
(4) Current Report on Form 8-K dated October 4, 2000; and
(5) all documents subsequently filed by either FelCor or FelCor LP
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, prior to the termination of
this offering.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at the following address: Lawrence
D. Robinson, Senior Vice President, General Counsel and Secretary, FelCor
Lodging Trust Incorporated, 545 East John Carpenter Freeway, Suite 1300, Irving,
Texas 75062, telephone (972) 444-4900, or by e-mail at [email protected].
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SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the exchange offer and our financial
statements and the notes thereto appearing elsewhere in this prospectus or
incorporated herein by reference. Unless the context otherwise requires, the
words "we," "our," "ours," "us" and the "Company" refer to FelCor Lodging Trust
Incorporated (FelCor), FelCor Lodging Limited Partnership (FelCor LP) and their
respective subsidiaries, collectively.
THE COMPANY
OVERVIEW
We are one of the nation's largest hotel REITs, with ownership interests in
188 hotels at August 31, 2000, with nearly 50,000 rooms and suites. We own a
100% interest in 163 hotels with 42,292 rooms and suites, a 90% or greater
interest in entities owning seven hotels with 1,745 rooms and suites, a 60%
interest in an entity owning two hotels with 983 rooms and a 50% interest in
separate entities that own 16 hotels with 4,018 rooms and suites. Our hotels are
located in the United States (35 states) and Canada, with a concentration in
Texas (41 hotels), California (20 hotels), Florida (18 hotels) and Georgia (15
hotels).
We own the largest number of Embassy Suites, Crowne Plaza, Holiday Inn and
independently owned Doubletree-branded hotels in the world. The following table
lists our hotels, by brand, at August 31, 2000:
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BRAND TOTAL
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Embassy Suites.............................................. 60*
Holiday Inn................................................. 44
Crowne Plaza and Crowne Plaza Suites........................ 18
Doubletree and Doubletree Guest Suites...................... 14
Holiday Inn Select.......................................... 10
Sheraton and Sheraton Suites................................ 10
Hampton Inn................................................. 9
Holiday Inn Express......................................... 5
Fairfield Inn............................................... 5
Harvey Hotel................................................ 4
Independents................................................ 3
Courtyard by Marriott....................................... 2
Four Points by Sheraton..................................... 1
Hilton Suites............................................... 1
Homewood Suites............................................. 1
Westin...................................................... 1
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Total Hotels...................................... 188
===
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* Includes one Embassy Suites hotel that was sold on September 27, 2000.
We seek to increase operating cash flow through both internal growth and
selective acquisitions, while maintaining a flexible and conservative capital
structure. In addition to renovating, redeveloping and repositioning our
acquired hotels, we may seek to acquire new upscale properties that will benefit
from affiliation with one of the premium brands available to us through our
strategic brand owner and manager relationships with Hilton Hotels Corporation,
Bass plc and Starwood Hotels & Resorts Worldwide, Inc.
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We recently identified 25 non-strategic hotels which we presently intend to
sell. If sold, we expect gross sales proceeds from these hotels should be
approximately $150 million and net proceeds should be approximately $136 million
(after deducting estimated transaction costs and the costs of terminating the
existing leases and management rights). To date, we have reached an agreement in
principle on the cost of terminating the leases on only 12 of these hotels. We
anticipate that the sale of these 25 hotels would result in a book loss of
approximately $63 million. Accordingly, our Board of Directors approved a $63
million reserve for the hotels held for sale at June 30, 2000, to reflect the
difference between our book value and the estimated market value of these
hotels. In addition to these hotels, on September 27, 2000, we sold our Embassy
Suites hotel, Los Angeles International Airport (North), California for a gross
sale price of approximately $24 million, resulting in a gain on sale of
approximately $2.5 million.
The Leases. To enable us to satisfy certain requirements for qualification
as a REIT, generally we cannot operate the hotels in which we invest.
Accordingly, we have leased 85 hotels to DJONT Operations, L.L.C. and its
consolidated subsidiaries (DJONT) and 100 hotels to Bristol Hotels & Resorts and
its consolidated subsidiaries (Bristol). Bristol became a subsidiary of Bass plc
(Bass) by virtue of a merger between Bristol and a subsidiary of Bass on March
31, 2000. Two of the hotels are not leased.
Our leases generally have initial terms of five to 15 years and provide for
rent equal to the greater of a minimum base rent or a percentage rent based on
room and suite revenues, food and beverage revenues, food and beverage rents
and, in certain instances, other hotel revenues. Such arrangements are generally
referred to as Percentage Leases.
The Lessees. Bass, which is a publicly traded company, is one of the
largest hotel operating companies in the world. DJONT is a private company
controlled by Thomas J. Corcoran, Jr., the President, Chief Executive Officer
and a director of FelCor.
Subsidiaries of Bass manage all of the hotels leased by Bristol, plus one
of the two FelCor hotels that are not leased. DJONT has entered into management
agreements pursuant to which 71 hotels leased by it are managed by subsidiaries
of Hilton, 11 are managed by subsidiaries of Starwood and three are managed by
two independent management companies.
On July 21, 2000, our independent directors approved the acquisition of
100% of DJONT effective January 1, 2001. The purchase price is expected to be
approximately 417,000 FelCor LP units (valued at $9.3 million based upon the
$22.375 closing share price on August 31, 2000). No binding agreements have been
entered into for this acquisition. We expect that the benefits to us from the
purchase of DJONT, if completed, will include: (i) a more direct relationship
with the hotel and brand managers, (ii) elimination of potential conflicts of
interest and (iii) consolidated hotel level financial reporting. We are
currently negotiating with Bass to acquire the Bristol lessee or the leases held
by it. We cannot assure you that we will successfully complete these
transactions.
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The Corporate Structure. The following diagram depicts our general
corporate structure and debt outstanding at June 30, 2000, after giving effect
to the private offering of the Old Notes, and share repurchases through August
31, 2000:
[CHART]
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* The line of credit was reduced to $600 million effective August 1, 2000.
THE INDUSTRY
The United States hotel industry profitability has improved each year since
1992, the longest sustained growth in history. According to
PricewaterhouseCoopers LLP's 1999 Lodging Industry Briefing, after a period of
extended unprofitability in the late 1980's and early 1990's, during which time
the increase in the supply of new hotel rooms significantly outpaced growth in
room demand, lodging industry profit increased every year from 1992 through 1999
and is expected to increase again in 2000. The percentage growth in room demand
exceeded percentage growth in new room supply from 1992 through 1996. While 1997
and 1998 experienced the highest number of new room starts in the prior 10
years, 1999 showed a decline in new room starts of 8.2% from the 1998 level. In
spite of the above-average increases in room supply since 1995, according to
PricewaterhouseCoopers LLP's September 1997 and May 2000 Hospitality Directions,
annual revenue per available room has grown each year from 1995 through 1999 and
is expected to continue to grow in 2000.
Smith Travel Research, a leading provider of industry data, classifies
hotel chains into five distinct categories: Upper Upscale, Upscale, Midscale
With Food & Beverage, Midscale Without Food & Beverage, and Economy. We remain
focused on properties in the Upper Upscale (including Doubletree Guest Suites,
Embassy Suites, Sheraton and Westin hotels), Upscale (including Crowne Plaza,
Doubletree Hotels and Homewood Suites), and Midscale With Food & Beverage
(including Harvey, Holiday Inn and Holiday Inn Select hotels) categories, from
which we derived approximately 97% of our revenues in 1999.
PricewaterhouseCoopers LLP's
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Hospitality Directions, December 1999/January 2000, projects that 2000 RevPAR
growth will be 2.4% for Upper Upscale hotels, 2.9% for Upscale hotels, and 3.0%
for hotels in the Midscale With Food & Beverage category. The same publication
projects 2000 changes in supply and demand for each segment: Upper Upscale
hotels, supply growth of 4.3% and demand growth of 3.2%; Upscale hotels, supply
growth of 7.0% and demand growth of 7.3%: and hotels in the Midscale with Food
and Beverage category should have no change in supply with a slight decline
(0.7%) in demand.
BUSINESS STRATEGY
We seek to increase operating cash flow through active asset management. In
addition to actively overseeing the operation of our hotels by our lessees and
their managers, we apply our asset management expertise to the renovation,
redevelopment and rebranding of hotels, the maintenance of strong strategic
relationships with our brand owners and managers and the maintenance of
financial flexibility.
HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING
We have historically differentiated ourselves from many of our competitors
by:
- our practice of upgrading, renovating and/or redeveloping most of our
acquired hotels to enhance their competitive position and, in certain
instances, rebranding them to improve their revenue generating capacity;
and
- our ongoing program for the maintenance of our upgraded hotel assets,
which includes:
- our contribution of at least 4% of annual room and suite revenue for the
DJONT hotels and 3% of total annual hotel revenue for the Bristol hotels
for routine capital replacements and improvements; and
- our ensuring that the lessees adhere to a maintenance and repair program
amounting to approximately 4.5% of annual hotel revenues.
During 1998 and 1999, an aggregate of approximately $442 million in capital
improvements and other capital expenditures were made to our hotels, with
approximately 3% of total hotel room nights being lost in 1998 and 2% in 1999
due to renovations. During 2000, we currently expect to spend approximately $15
million on the renovation of 28 hotels, approximately $42 million to complete
renovations started in 1999 at 28 hotels, and approximately $40 million for
other capital expenditures. We are currently reviewing the feasibility of
undertaking between $4 and $10 million of additional renovations during 2000. We
expect an insignificant number of room nights to be lost during 2000 as a result
of renovations. By the end of 2000, the Company will have spent more than $900
million since 1994 on renovation and other capital expenditures to its hotel
portfolio, which should limit the need for future renovation expenditures
primarily to those necessary to maintain the hotels in their upgraded condition.
The largest single renovation project completed during 1999 was the
Allerton Crowne Plaza in Chicago, which reopened in July 1999, after having been
closed for more than a year. This project has received numerous awards,
including Lodging Hospitality magazine's Year's Best Design competition in two
categories, Bass Hotels & Resorts 1999 Newcomer of the Year award, and Chicago's
Greater North Michigan Avenue Association 1999 Avenue Enhancement award.
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MAINTENANCE OF STRONG STRATEGIC RELATIONSHIPS
We benefit from strategic brand owner and manager relationships with Hilton
(Embassy Suites and Doubletree), Bass (Crowne Plaza and Holiday Inn) and
Starwood (Sheraton and Westin).
- Hilton, which acquired Promus Hotel Corporation in 1999, now has a hotel
portfolio of more than 1,800 hotels with more than 300,000 rooms in 50
states and the District of Columbia, and is now the largest operator of
full-service, all-suite hotels in the United States. In addition to its
Hilton and Conrad International-branded hotels, Hilton now owns the
Embassy Suites, Doubletree and Doubletree Guest Suites brands and manages
71 of our hotels. As a result of its acquisition of Promus, Hilton
acquired an equity interest in our Company having an aggregate value of
approximately $32 million at August 31, 2000, and it became a 50% partner
in joint ventures with us in the ownership of 12 hotels and the holder of
a 10% equity interest in certain subsidiaries owning six hotels. The
relationship with Promus and its Embassy Suites brand provided the
foundation for our historical growth, and we expect to expand our
relationship with Hilton, as the successor to Promus.
- Bass operates or franchises more than 2,900 hotels worldwide. Among the
brands owned by Bass are Crowne Plaza, Holiday Inn, Holiday Inn Select,
Holiday Inn Express and Inter-Continental. Bass, which acquired Bristol
on March 31, 2000, manages 101 of our hotels. Bass also owns FelCor
common stock and FelCor LP units aggregating approximately 15.5% of our
outstanding common stock and units. Bass is one of the largest hotel
operating companies in the world.
- Starwood is one of the world's largest hotel operating companies.
Directly and through subsidiaries, Starwood owns, leases, manages or
franchises approximately 700 hotels with more than 217,000 rooms in 70
countries. Our strategic alliance with Starwood, coupled with the
purchase of seven Sheraton hotels in 1997, provided us with our initial
entry into the upscale, full-service, non-suite hotel market. Starwood
manages 11 of our hotels and is a 40% joint venture partner with us in
the ownership of two hotels and a 50% joint venture partner with us in
the ownership of one hotel.
MAINTENANCE OF FINANCIAL FLEXIBILITY
We are committed to maintaining substantial financial flexibility. In
funding our growth, we have used a broad selection of financing sources to
minimize our cost of capital, including public equity, collateralized
mortgage-backed securities, public and private debt, and asset divestitures. We
believe that our capital structure will continue to be among the most
conservative in the hotel REIT industry. We believe our financial flexibility
should enable us to pursue selective hotel acquisition and expansion
opportunities and to take advantage of renovation, redevelopment and rebranding
opportunities to help us improve our competitive position.
RECENT DEVELOPMENTS
During the first six months of 2000, we:
- had revenues of $283 million, after adding back deferred rent of $19
million, as compared to revenues of $262 million in the first six months
of 1999;
- repurchased 3.1 million common shares pursuant to our share repurchase
program, for approximately $56.7 million;
- had Funds From Operations (FFO) of $149 million, as compared to $154
million for the same period of 1999;
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- had EBITDA of $239 million, as compared to EBITDA of $224 million for the
same period of 1999;
- completed an aggregate of $331 million of long-term fixed rate mortgage
financings, the proceeds of which were used to fund repurchases of our
stock and to reduce borrowings under our line of credit; and
- identified 25 non-strategic hotels to be sold, with estimated aggregate
net proceeds of $136 million, and recorded a one-time reserve of $63
million in the second quarter to reflect the difference between our book
value and the estimated market value of these hotels.
Since June 30, 2000:
- we sold our Embassy Suites hotel, Los Angeles International Airport
(North), California (215 suites), for a gross sale price of approximately
$24 million, resulting in a gain on sale of approximately $2.5 million;
- we renewed our line of credit; the line of credit was reduced from $850
million to $600 million and the maturity was extended from July 2001 to
August 2003; the effective interest rate ranges from 87.5 basis points to
250 basis points above LIBOR depending on our leverage and corporate
rating; and
- our independent directors approved the acquisition of 100% of DJONT,
effective January 1, 2001, for an expected purchase price of
approximately 417,000 FelCor LP units; no binding agreements have been
entered into for this acquisition, and we cannot assure you that we will
successfully complete this transaction.
On January 1, 2001, the provisions of the REIT Modernization Act will
become effective. These provisions will:
- reduce the percentage of taxable income required to be distributed by a
REIT from 95% to 90%, and
- subject to certain limitations, permit a REIT to own taxable subsidiaries
that engage in businesses previously prohibited to a REIT, including,
among other things, leasing hotels from a hotel REIT, provided that the
hotels in question continue to be managed by unrelated third parties.
This act and its potential impact on the Company are discussed in further
detail elsewhere in this prospectus.
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THE EXCHANGE OFFER
On September 15, 2000, we completed the private offering of $400 million of
9 1/2% Senior Notes Due 2008. We entered into a registration rights agreement
with the initial purchasers in the private offering of such Old Notes in which
we agreed, among other things, to deliver to you this prospectus and to complete
this exchange offer within 180 days of the original issuance of the Old Notes.
You are entitled to exchange in this exchange offer Old Notes that you hold for
registered New Notes with substantially identical terms. If this exchange offer
is not completed within 180 days of September 15, 2000, then the interest rate
on the Old Notes will increase to 10.0% until it is completed or, under certain
circumstances, a resale registration statement with respect to the Old Notes is
declared effective by the SEC. You should read the discussion under the headings
"-- Description of New Notes" and "Description of the New Notes and Guarantees"
for further information regarding the New Notes.
We believe that the New Notes to be issued in this exchange offer may be
resold by you without compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain conditions.
The following summarizes the terms of the exchange offer. You should read
the discussion under the heading "The Exchange Offer" for further information
regarding this exchange offer and resale of the New Notes.
Securities to be
Exchanged.................. On September 15, 2000, we issued $400 million in
aggregate principal amount of Old Notes to the
initial purchasers in a transaction exempt from the
registration requirements of the Securities Act of
1933, as amended (the "Securities Act"). The terms
of the New Notes and the Old Notes are
substantially identical in all material respects,
except that the New Notes will be freely
transferable by the holders except as otherwise
provided in this prospectus. See "Description of
the New Notes and Guarantees."
The Exchange Offer......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, Old Notes representing $400
million aggregate principal amount are outstanding.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to certain third parties unrelated to us, we
believe that New Notes issued pursuant to the
exchange offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred
by holders thereof (other than any holder which is
an "affiliate" of FelCor LP, FelCor or certain of
their subsidiaries (the "Subsidiary Guarantors")
within the meaning of Rule 405 under the Securities
Act, or a broker-dealer who purchased Old Notes
directly from us to resell pursuant to Rule 144A or
any other available exemption under the Securities
Act), without compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and
such holders have no arrangement with any person to
engage in a distribution of New Notes.
However, the Commission has not considered the
exchange offer in the context of a no-action letter
and we cannot be sure that the staff of the
Commission would make a similar
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determination with respect to the exchange offer as
in such other circumstances. Furthermore, each
holder, other than a broker-dealer, must
acknowledge that is not engaged in, and does not
intend to engage or participate in, a distribution
of New Notes. Each broker-dealer that receives New
Notes for his own account pursuant to the exchange
offer must acknowledge that it will comply with the
prospectus delivery requirements of the Securities
Act in connection with any resale of such New
Notes. Broker-dealers who acquired Old Notes
directly from us and not as a result of
market-making activities or other trading
activities may not rely on the staff's
interpretations discussed above or participate in
the exchange offer and must comply with the
prospectus delivery requirements of the Securities
Act in order to resell the Old Notes.
Registration Rights
Agreement................ We sold the Old Notes on September 15, 2000, in a
private placement in reliance on Section 4(2) of
the Securities Act. The Old Notes were immediately
resold by the initial purchasers in reliance on
Rule 144A under the Securities Act. In connection
with the sale, we, together with FelCor and the
Subsidiary Guarantors, entered into a Registration
Rights Agreement with the initial purchasers (the
"Registration Rights Agreement") requiring us to
make the exchange offer. The Registration Rights
Agreement further provides that we must cause the
Registration Statement with respect to the exchange
offer to be declared effective within 180 days of
September 15, 2000. See "The Exchange
Offer -- Purpose and Effect."
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on November 30, 2000 or a later
date and time if we extend it (the "Expiration
Date").
Withdrawal................. The tender of the Old Notes pursuant to the
exchange offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense as soon as practicable after the
expiration or termination of the exchange offer.
Interest on the New Notes
and the Old Notes........ Interest on the New Notes will accrue from
September 15, 2000, or from the date of the last
payment of interest on the Old Notes, whichever is
later. No additional interest will be paid on Old
Notes tendered and accepted for exchange.
Conditions of the Exchange
Offer.................... The exchange offer is subject to certain customary
conditions, certain of which may be waived by us.
See "The Exchange Offer -- Conditions of the
Exchange Offer."
Procedures for Tendering
Old Notes.................. Each holder of the Old Notes wishing to accept the
exchange offer must complete, sign and date the
letter of transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
letter of transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the exchange agent at the
8
<PAGE> 13
address set forth herein. Persons holding the Old
Notes through the Depository Trust Company ("DTC")
and wishing to accept the exchange offer must do so
pursuant to DTC's Automated Tender Offer Program,
by which each tendering participant will agree to
be bound by the letter of transmittal. By executing
or agreeing to be bound by the letter of
transmittal, each holder will represent to us that,
among other things, (1) the New Notes acquired
pursuant to the exchange offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, (2) the holder is not
engaging in and does not intend to engage in a
distribution of the New Notes, (3) the holder does
not have an arrangement or understanding with any
person to participate in the distribution of the
New Notes, and (4) the holder is not an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of FelCor LP, FelCor or
any of the Subsidiary Guarantors.
We will accept for exchange any and all Old Notes
which are properly tendered (and not withdrawn) in
the exchange offer prior to the Expiration Date.
The New Notes will be delivered promptly following
the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Exchange Agent............. SunTrust Bank is serving as Exchange Agent (the
"Exchange Agent") in connection with the exchange
offer.
Federal Income Tax
Considerations........... We believe the exchange of Old Notes for New Notes
pursuant to the exchange offer will not constitute
a sale or an exchange for federal income tax
purposes. See "Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, continue to be
subject to the existing restrictions upon transfer.
We will have no further obligation to provide for
the registration under the Securities Act of the
Old Notes.
DESCRIPTION OF NEW NOTES
Issuer..................... FelCor Lodging Limited Partnership.
Securities Offered......... $400,000,000 aggregate principal amount of 9 1/2%
Senior Notes Due 2008.
Maturity................... September 15, 2008.
Interest................... Interest will be payable in cash on March 15 and
September 15 of each year, beginning March 15,
2001.
Optional Redemption........ We cannot redeem the New Notes until September 15,
2004, except as described below in connection with
certain equity offerings. At any time on or after
September 15, 2004, we may redeem some or all of
the New Notes at the redemption prices listed under
the heading "Description of the Notes and
Guarantees -- Optional Redemption," plus accrued
and unpaid interest.
9
<PAGE> 14
Optional Redemption
After Equity Offerings... At any time before September 15, 2003, we may elect
to redeem up to 35% of the outstanding New Notes
with funds that we raise in one or more equity
offerings, as long as:
- we pay 109.5% of the face amount of the New
Notes, plus interest;
- we redeem the New Notes within 90 days of
completing the equity offering; and
- at least 65% of the aggregate principal amount of
the New Notes remains outstanding afterwards.
Change of Control.......... Upon a change of control, we will be required to
make an offer to purchase the New Notes at 101% of
the principal amount plus accrued and unpaid
interest. We may not have sufficient funds
available at the time of any change of control to
effect the purchase.
Guarantees................. The New Notes will be unconditionally guaranteed on
an unsecured senior basis by FelCor and by certain
wholly owned subsidiaries that are obligors on
other senior debt of FelCor or FelCor LP.
Ranking.................... The New Notes will be unsecured and will rank
equally with all our existing and future unsecured
senior debt. The New Notes will be effectively
subordinated to all of our and our consolidated
subsidiaries' secured debt and to all other debt of
our non-guarantor subsidiaries. As of June 30,
2000, after giving effect to the private offering
of the Old Notes and the application of the net
proceeds, and share repurchases through August 31,
2000, we and our consolidated subsidiaries would
have had approximately $789 million of secured
debt, all of which is mortgage and capitalized
lease debt and effectively senior to the New Notes
to the extent of the value of the underlying
assets.
At June 30, 2000, our non-guarantor subsidiaries
had no other debt.
Certain Other Covenants.... The indenture governing the New Notes restricts our
ability and the ability of our restricted
subsidiaries to:
- incur additional debt;
- incur additional secured debt and subsidiary
debt;
- make certain distributions, investments and other
restricted payments;
- limit the ability of restricted subsidiaries to
make payments to us;
- issue or sell stock of restricted subsidiaries;
- enter into transactions with affiliates;
- create liens;
- sell assets;
10
<PAGE> 15
- enter into certain sale-leaseback transactions;
and
- with respect to FelCor LP and FelCor,
consolidate, merge or sell all or substantially
all of their assets.
These covenants are subject to a number of
important limitations and exceptions.
Ratings Downgrade.......... Upon the occurrence of, and during the continuance
of, a ratings downgrade, as defined, the New Notes
will bear yearly interest at a rate equal to 10%.
See "Description of the Notes and
Guarantees -- Certain Definitions -- Ratings
Downgrade."
Fall-Away Covenants........ Under the indenture governing the New Notes, in the
event, and only for as long as, the New Notes are
rated investment grade and no default or event of
default has occurred and is continuing, many of the
covenants described above will not be applicable to
FelCor, FelCor LP and their restricted
subsidiaries.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 16 BEFORE INVESTING IN THE NOTES.
11
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables set forth summary historical and pro forma
consolidated financial information for FelCor Lodging Limited Partnership and
FelCor Lodging Trust Incorporated. The summary historical information is
presented for the years ended December 31, 1997, 1998 and 1999 and the six
months ended June 30, 1999 and 2000. We derived the historical financial
information for the years ended December 31, 1997, 1998 and 1999 from our
financial statements and the notes thereto, audited by PricewaterhouseCoopers
LLP, independent accountants. The summary historical financial information as of
and for the six months ended June 30, 1999 and 2000 have been derived from the
unaudited financial statements which have been prepared by management on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments consisting of normal recurring accruals that
are considered necessary for a fair presentation of the results for such
periods. The results of operations for the six months ended June 30, 1999 and
2000 are not necessarily indicative of results to be anticipated for the entire
year. The summary unaudited pro forma consolidated financial information for the
year ended December 31, 1999, twelve months ended June 30, 2000, and the six
months ended June 30, 2000, are presented for illustrative purposes only and are
not necessarily indicative of what our actual results of operations would have
been had the transactions described below been consummated on the date
indicated. You should read the following information together with the "Selected
Historical and Pro Forma Consolidated Financial Information;" "Management's
Discussion and Analysis of Financial Condition and Results of Operations;" the
Pro Forma Consolidated Statements of Operations, Balance Sheets and Notes
thereto; and the Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus or incorporated herein by reference.
The pro forma consolidated financial information is presented as if the
following occurred on January 1, 1999: (i) the issuance of $400 million of the
Old Notes and the application of the net proceeds, (ii) the completion of the
other financing transactions which occurred in 2000, (iii) the repurchase by
FelCor of $164.3 million of its common stock through August 31, 2000, and (iv)
the sale of 25 non-strategic hotels identified in the second quarter of 2000.
12
<PAGE> 17
FELCOR LODGING LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
ACTUAL
--------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------ -----------------------
1997 1998 1999 1999 2000(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................ $ 176,651 $ 339,617 $ 504,001 $ 262,104 $ 264,670
Income (loss) before
nonrecurring items.......... $ 69,652 $ 123,937 $ 136,653 $ 81,521 $ (13,247)
Net income (loss)............ $ 69,467 $ 121,339 $ 135,776 $ 80,408 $ (12,372)
Net income (loss) applicable
to unitholders.............. $ 57,670 $ 99,916 $ 111,041 $ 68,040 $ (24,730)
OTHER DATA:
Funds From Operations(2)..... $ 129,815 $ 217,363 $ 286,895 $ 154,232 $ 149,380
EBITDA(3).................... $ 165,613 $ 306,361 $ 432,689 $ 223,590 $ 238,753
Ratio of EBITDA to interest
expense..................... 4.8x 3.8x 3.3x 4.1x 2.9x
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 2.6x 2.2x 1.8x 2.0x .9x
Adjusted ratio of earnings to
combined fixed charges and
preferred
distributions(5)............ 2.6x 2.2x 1.8x 2.0x 1.6x
BALANCE SHEET DATA:
Total assets................. $1,673,364 $4,175,383 $4,255,751 $4,280,626 $4,176,765
Debt......................... $ 476,819 $1,594,734 $1,833,954 $1,712,540 $1,882,743
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------------------------
SIX MONTHS
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, ENDED JUNE 30, JUNE 30,
1999 2000 2000
------------ -------------- ----------
(IN THOUSANDS EXCEPT RATIO DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................ $480,885 $484,600 $ 253,438
Income (loss) before
nonrecurring items.......... $107,608 $ 87,351 $ 44,685
Net income (loss)............ $107,844 $ 88,462 $ 45,560
Net income (loss) applicable
to unitholders.............. $ 83,109 $ 63,737 $ 33,202
OTHER DATA:
Funds From Operations(2)..... $251,085 $257,316 $ 140,644
EBITDA(3).................... $412,871 $429,143 $ 229,229
Ratio of EBITDA to interest
expense..................... 2.8x 2.7x 2.8x
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 1.6x 1.5x 1.5x
Adjusted ratio of earnings to
combined fixed charges and
preferred
distributions(5)............ 1.6x 1.5x 1.5x
BALANCE SHEET DATA:
Total assets................. $4,050,047
Debt......................... $1,768,693
</TABLE>
FELCOR LODGING TRUST INCORPORATED
<TABLE>
<CAPTION>
ACTUAL
--------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------ -----------------------
1997 1998 1999 1999 2000(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................ $ 176,651 $ 339,617 $ 504,001 $ 262,104 $ 264,670
Income (loss) before
nonrecurring items.......... $ 63,835 $ 117,437 $ 131,957 $ 78,682 $ (10,848)
Net income (loss)............ $ 63,650 $ 114,839 $ 131,080 $ 77,569 $ (9,973)
Net income (loss) applicable
to common shareholders...... $ 51,853 $ 93,416 $ 106,345 $ 65,201 $ (22,331)
OTHER DATA:
Funds From Operations(2)..... $ 129,815 $ 217,363 $ 286,895 $ 154,232 $ 149,380
EBITDA(3).................... $ 165,613 $ 306,361 $ 432,689 $ 223,590 $ 238,753
Ratio of EBITDA to interest
expense..................... 4.8x 3.8x 3.3x 4.1x 2.9x
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 2.6x 2.2x 1.8x 2.0x .9x
Adjusted ratio of earnings to
combined fixed charges and
preferred
distributions(5)............ 2.6x 2.2x 1.8x 2.0x 1.6x
BALANCE SHEET DATA:
Total assets................. $1,673,364 $4,175,383 $4,255,751 $4,280,626 $4,176,765
Debt......................... $ 476,819 $1,594,734 $1,833,954 $1,712,540 $1,882,743
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------------------------
SIX MONTHS
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, ENDED JUNE 30, JUNE 30,
1999 2000 2000
------------ -------------- ----------
(IN THOUSANDS EXCEPT RATIO DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................ $480,885 $484,600 $ 253,438
Income (loss) before
nonrecurring items.......... $103,586 $ 82,698 $ 41,388
Net income (loss)............ $103,822 $ 83,809 $ 42,263
Net income (loss) applicable
to common shareholders...... $ 79,087 $ 59,084 $ 29,905
OTHER DATA:
Funds From Operations(2)..... $251,085 $257,316 $ 140,644
EBITDA(3).................... $412,871 $429,143 $ 229,229
Ratio of EBITDA to interest
expense..................... 2.8x 2.7x 2.8x
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 1.6x 1.5x 1.5x
Adjusted ratio of earnings to
combined fixed charges and
preferred
distributions(5)............ 1.6x 1.5x 1.5x
BALANCE SHEET DATA:
Total assets................. $4,050,047
Debt......................... $1,768,693
</TABLE>
------------
(1) In the second quarter of 2000, the Company recorded a $63 million one-time
reserve for the sale of non-strategic hotel assets, which is reflected in
the income statements presented for the period.
13
<PAGE> 18
(2) The Company considers Funds From Operations to be a key measure of a REIT's
performance which should be considered along with, but not as an alternative
to, net income and cash flow as a measure of operating performance and
liquidity.
The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts (NAREIT)
defines Funds From Operations as net income or loss (computed in accordance
with generally accepted accounting principles ("GAAP")), excluding gains or
losses from debt restructuring which would be extraordinary items in
accordance with GAAP and sales of depreciable operating properties, plus
real estate related depreciation and amortization and after comparable
adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds
From Operations is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flow from operating activities,
financing activities, and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures, and to fund other cash needs. The Company
computes Funds From Operations in accordance with standards established by
NAREIT, except that the Company adds back rent deferred under SAB 101 to
derive Funds From Operations. This may not be comparable to Funds From
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition, that interpret the current NAREIT
definition differently than the Company or that do not adjust Funds From
Operations for rent deferred under SAB 101. Funds From Operations does not
represent cash generated from operating activities determined by GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. Funds From Operations may include
funds that may not be available for management's discretionary use due to
requirements to conserve funds for capital expenditures and property
acquisitions and other commitments and uncertainties.
The computation of Funds From Operations for FelCor LP and FelCor yields the
same result. The following table details the computation of Funds From
Operations for FelCor LP.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------------------------------------------------- -----------------------------------------
SIX MONTHS ENDED
JUNE 30, TWELVE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, (UNAUDITED) YEAR ENDED ENDED ENDED
------------------------------ ------------------- DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1999 1999 2000 1999 2000 2000
-------- -------- -------- -------- -------- ------------ ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).......... $ 69,467 $121,339 $135,776 $ 80,408 $(12,372) $107,844 $ 88,462 $ 45,560
Deferred rent.............. 18,604 18,604 18,604
Reserve for assets held for
sale...................... 63,000
Series B redeemable
preferred distributions... (8,373) (12,937) (6,468) (6,468) (12,937) (12,937) (6,468)
Extraordinary charge from
write off of deferred
financing fees............ 185 3,075 1,113 1,113
Depreciation............... 50,798 90,835 152,948 74,162 81,480 146,183 153,073 77,812
Depreciation from
unconsolidated entities... 9,365 10,487 9,995 5,017 5,136 9,995 10,114 5,136
-------- -------- -------- -------- -------- -------- -------- --------
Funds From Operations
(FFO)..................... $129,815 $217,363 $286,895 $154,232 $149,380 $251,085 $257,316 $140,644
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 19
(3) EBITDA is computed by adding FFO, interest expense, the Company's portion of
interest expense from unconsolidated entities, amortization expense, and the
Company's Series B redeemable preferred distributions. The computation of
EBITDA for FelCor LP and FelCor yields the same result. EBITDA is presented
because it provides useful information regarding our ability to service
debt. EBITDA should not be considered as an alternative measure of operating
results or cash flow from operations (as determined in accordance with
GAAP). EBITDA as presented by us may not be comparable to other similarly
titled measures used by other companies. A reconciliation of Funds From
Operations to EBITDA is as follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------------------------------------------------- ------------------------------------------
SIX MONTHS ENDED TWELVE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED ENDED
------------------------------ ------------------- DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1999 1999 2000 1999 2000 2000
-------- -------- -------- -------- -------- ------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations..... $129,815 $217,363 $286,895 $154,232 $149,380 $251,085 $257,316 $140,644
Interest expense.......... 28,792 73,182 125,435 59,172 77,644 141,427 149,925 76,856
Interest expense from
unconsolidated
entities................. 5,895 6,521 6,729 3,343 4,787 6,729 8,173 4,787
Amortization expense...... 1,111 922 693 375 474 693 792 474
Series B redeemable
preferred
distributions............ 8,373 12,937 6,468 6,468 12,937 12,937 6,468
-------- -------- -------- -------- -------- -------- -------- --------
EBITDA.................... $165,613 $306,361 $432,689 $223,590 $238,753 $412,871 $429,143 $229,229
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
A reconciliation of EBITDA and Consolidated EBITDA as defined for the Notes
is as follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------------------------------------------------- ------------------------------------------
SIX MONTHS ENDED TWELVE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED ENDED
------------------------------ ------------------- DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1999 1999 2000 1999 2000 2000
-------- -------- -------- -------- -------- ------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................... $165,613 $306,361 $432,689 $223,590 $238,753 $412,871 $429,143 $229,229
Deduct -- Interest Expense
from unconsolidated
entities................. (5,895) (6,521) (6,729) (3,343) (4,787) (6,729) (8,173) (4,787)
Income from unconsolidated
entities................. (6,963) (7,017) (8,484) (3,837) (5,648) (8,484) (10,295) (5,648)
Gain on asset sales....... (477) (236) (875) (236) (1,111) (875)
Add -- Distributions from
unconsolidated
entities................. 4,211 19,066 19,581 13,297 11,708 19,581 17,992 11,708
-------- -------- -------- -------- -------- -------- -------- --------
Consolidated EBITDA....... $156,966 $311,412 $436,821 $229,707 $239,151 $417,003 $427,556 $229,627
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(4) For the purpose of computing the ratio of earnings to combined fixed charges
and preferred distributions, earnings consist of income from continuing
operations plus fixed charges and minority interest in FelCor LP (with
respect to FelCor), excluding capitalized interest, and fixed charges
consist of interest, whether expensed or capitalized, and amortization of
loan costs.
(5) The adjusted ratio of earnings to combined fixed charges and preferred
distributions is computed the same as described in footnote (4) except that
income from continuing operations is adjusted to add back a $63 million
one-time reserve for the sale of non-strategic hotel assets recorded in the
second quarter of 2000.
15
<PAGE> 20
RISK FACTORS
An investment in the Notes involves a significant degree of risk. You
should carefully consider the following risk factors, together with all of the
other information included in this prospectus, in evaluating the exchange offer.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY
AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely
received by the Exchange Agent together with all required documents, including a
properly completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the Exchange Agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes properly, then, after we consummate the exchange offer, you may continue
to hold Old Notes that are subject to the existing transfer restrictions. In
addition, if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes. If you are a broker-dealer that
receives New Notes for your own account in exchange for Old Notes that you
acquired as a result of market-making activities or any other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of such New Notes. After the exchange
offer is consummated, if you continue to hold any Old Notes, you may have
difficulty selling them because there may be only a small amount of Old Notes
outstanding. In addition, if a large amount of Old Notes are not tendered or are
tendered improperly, the limited amount of New Notes that would be issued and
outstanding after we consummate the exchange offer could lower the market price
of such New Notes.
WE HAVE HAD INCREASES IN LEVERAGE THAT COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION
As a result of our 1998 merger with Bristol Hotel Company, our leverage
increased during 1998, and it has increased further to fund our renovation,
redevelopment and rebranding program and our share repurchase program. The share
repurchase program authorizes repurchases up to an aggregate maximum of $300
million. Through August 31, 2000, we have repurchased approximately 9.3 million
shares of common stock under this program at an aggregate cost of approximately
$164.3 million.
At June 30, 2000, after giving effect to the private offering of the Old
Notes and the application of the net proceeds, and share repurchases through
August 31, 2000:
- we would have had approximately $1.9 billion in consolidated debt, of
which approximately $789 million would have been secured by mortgages or
capital leases;
- we would have had a ratio of consolidated debt to investment in hotels at
cost of 42%;
- our ratio of EBITDA to interest expense for the six months then ended
would have been 2.7-to-1; and
- we would have had $248 million of floating rate debt, which would have
constituted 13% of our total debt. Most of this floating rate debt bears
interest at a rate equal to between 0.795% and 2.00% plus the one month
LIBOR rate. At August 31, 2000, the one month LIBOR rate was 6.630%.
Changes in economic conditions could result in higher interest rates,
thereby increasing our interest expense on our floating rate debt and
reducing funds available for our current renovation, redevelopment and
rebranding plans and our share repurchase program.
16
<PAGE> 21
Our leverage could have important consequences for you. For example, it
could:
- make it more difficult for us to satisfy our obligations with respect to
the Notes;
- limit our ability to obtain additional financing, if we need it, for
working capital, our renovation, redevelopment and rebranding plans,
acquisitions, debt service requirements or other purposes;
- increase our vulnerability to adverse economic and industry conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing funds available for
operations, future business opportunities or other purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- place us at a competitive disadvantage compared to our competitors that
have less debt.
THE NOTES ARE EFFECTIVELY JUNIOR TO CERTAIN OF OUR AND OUR SUBSIDIARIES'
EXISTING DEBT
The Old Notes are, and the New Notes will be, unsecured and will rank
equally with our existing and future unsecured senior debt. The Notes will be
effectively subordinated to all of our and our consolidated subsidiaries'
secured debt and to all other debt of our non-guarantor subsidiaries. As of June
30, 2000, after giving effect to the private offering of the Old Notes and the
application of the net proceeds, and share repurchases through August 31, 2000,
we and our consolidated subsidiaries would have had approximately $789 million
of secured debt, all of which is mortgage and capitalized lease debt and
effectively senior to the Notes to the extent of the value of the underlying
assets.
At June 30, 2000, our non-guarantor subsidiaries had no other debt.
The Old Notes have, and the New Notes will have, substantially the same
covenants and other terms and conditions as our existing 7 3/8% and 7 5/8%
senior notes, due 2004 and 2007, respectively, except that the redemption of the
Notes and the repurchase of capital stock will be subject to certain additional
restrictions.
WE MAY BE UNABLE TO REALIZE THE ANTICIPATED BENEFITS OF OUR RENOVATIONS
The majority of our hotels either recently have been, or are in the process
of being, substantially renovated, redeveloped and, in certain cases, rebranded.
If the completion of the current renovation projects are significantly delayed,
our operating results could be adversely affected. In addition, no assurance can
be given that the recently completed and ongoing improvements will achieve the
results anticipated when we made the decision to invest in the improvements.
WE DEPEND ON THE LESSEES' HOTEL OPERATIONS FOR OUR REVENUES
Our revenues consist primarily of rents received under our leases. The
lessees' payment of such rental obligations is generally unsecured. As the
lessee of 100 of our hotels, Bristol must maintain certain net worth and
liquidity requirements. DJONT, which leases 85 of our hotels, has limited
assets, derives its revenue solely from the operation of our hotels and, at June
30, 2000, had a shareholders' deficit of approximately $13.0 million. We
substantially depend upon the successful operation of our hotels to enable the
lessees, particularly DJONT, to meet their rental obligations under the leases.
The leases with Bristol and DJONT have varying terms, generally no longer
than 15 years. At the expiration of the lease terms, we will be required to
negotiate renewals or seek replacement leases. We cannot guarantee you that we
will be able to replace or renew such
17
<PAGE> 22
leases successfully or at all, and any failure to do so could adversely affect
our business, financial condition and results of operations.
CONFLICTS OF INTEREST COULD ADVERSELY AFFECT OUR BUSINESS
CERTAIN FELCOR DIRECTORS. DJONT leases 85 of our hotels. All of the voting
interests (and a 50% common equity interest) in DJONT are beneficially owned by
Hervey A. Feldman and Thomas J. Corcoran, Jr., co-founders of the Company.
Furthermore, Mr. Feldman is the Chairman Emeritus of FelCor and Mr. Corcoran is
the President, Chief Executive Officer and a director of FelCor. The children of
Charles N. Mathewson beneficially own the remaining 50% common equity,
non-voting interest in DJONT. Mr. Mathewson serves as a director of FelCor.
Bristol leases or manages 101 of our hotels. Bristol became a wholly-owned
subsidiary of Bass plc in March 2000. Richard C. North, who joined FelCor's
Board during 1998, is the Group Finance Director of Bass plc, which is also the
parent of Holiday Hospitality Franchising, Inc. Holiday Hospitality is the
franchisor of most of the Bristol hotels and, together with its affiliates, owns
FelCor common stock and FelCor LP units aggregating approximately 15.5% of our
outstanding common stock and units.
Issues may arise under the leases, franchise agreements and management
contracts, and in the allocation of acquisition and leasing opportunities, that
present conflicts of interests due to the relationship of these directors to the
companies with which they are associated. As an example, any decreases in lease
rental rates payable by DJONT may increase the profits of DJONT, in which
Messrs. Feldman and Corcoran and Mr. Mathewson's children have a direct economic
interest, at our expense. In the event we enter into new or additional hotel
leases or other transactions with Bristol, the interests of Mr. North, by virtue
of his relationship with Bass, may conflict with our interests. For example, any
decrease in lease rental rates payable by Bristol may decrease our profits to
the benefit of Bristol. Also, in the selection of franchises under which our
hotels will be operated, Mr. North by virtue of his relationship with Holiday
Hospitality, may have interests that conflict with our interest. We anticipate
that any director who has a conflict of interest with respect to an issue
presented to the FelCor board will abstain from voting upon that issue, although
he will have no legal obligation to do so. We have no provisions in our bylaws
or charter that require an interested director to abstain from voting upon an
issue. Although each director has a fiduciary duty of loyalty to the Company,
there is a risk that, should an interested director vote upon an issue in which
he or one of his affiliates has an interest, his vote may reflect a bias that
could be contrary to our best interests. In addition, even if an interested
director abstains from voting, the director's participation in the meeting and
discussion of an issue in which he or companies with which he is associated have
an interest could influence the votes of other directors regarding the issue.
ANTICIPATED ACQUISITION OF LESSEES. As a result of the passage of the REIT
Modernization Act, we will be able to form or acquire a taxable REIT subsidiary
(TRS) to acquire all or a portion of our existing hotel leases, and to serve as
the lessee for any hotels we acquire after January 1, 2001. In this regard, our
independent directors approved the acquisition of 100% of DJONT, effective
January 1, 2001, for an expected purchase price of approximately 417,000 units
of limited partner interest in FelCor LP. In addition, we currently are
negotiating with Bass to acquire our remaining lessee, Bristol, or the leases
owned by it. There are no binding agreements with Bass, DJONT or the owners of
DJONT, and any such acquisitions will be subject to further negotiations between
us and the lessees or their owners. These negotiations may involve potential
conflicts of interest which will need to be resolved before we can ultimately
acquire these lessees or leases. We cannot assure you that we will successfully
complete these transactions.
NO ARMS-LENGTH BARGAINING ON DJONT PERCENTAGE LEASES. We did not negotiate
the terms of the leases with DJONT on an arms-length basis. Accordingly, these
Percentage Leases
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may not reflect fair market values or terms. However, we believe that the terms
of these leases are fair to us. The rental terms of these leases were set based
upon historical financial information and projected operating performance of the
applicable hotel. The other terms of the leases are typical of the provisions
found in other leases entered into in similar circumstances. A majority of the
independent directors of FelCor approved the leases at the time they were
executed.
ADVERSE TAX CONSEQUENCES TO CERTAIN AFFILIATES ON A SALE OF CERTAIN HOTELS.
Messrs. Corcoran and Mathewson may incur additional tax liability if we sell our
investments in six hotels that we acquired in July 1994 from partnerships
controlled by these individuals. Consequently, our interests could differ from
Messrs. Corcoran and Mathewson's interests in the event that we consider a sale
of any of these hotels. Decisions regarding a sale of any of these six hotels
must be made by a majority of the independent directors.
WE HAVE RESTRICTIVE DEBT COVENANTS THAT COULD ADVERSELY AFFECT OUR ABILITY TO
RUN OUR BUSINESS
At June 30, 2000, after giving effect to the private offering of the Old
Notes and the application of the net proceeds, and share repurchases through
August 31, 2000, we would have had approximately $406 million borrowed under our
line of credit. We also had issued and outstanding $300 million in principal
amount of existing 7 3/8% and 7 5/8% senior notes, in addition to the Old Notes.
The indenture governing the Notes, the agreements governing our line of credit
and the indenture governing our existing 7 3/8% and 7 5/8% senior notes contain
various restrictive covenants including, among others, provisions restricting us
from:
- incurring indebtedness;
- making distributions;
- making investments;
- engaging in transactions with affiliates;
- incurring liens;
- merging or consolidating with another person;
- disposing of all or substantially all of our assets; or
- permitting limitations on the ability of our subsidiaries to make
payments to us.
These restrictions may adversely affect our ability to finance our
operations or engage in other business activities that may be in our best
interest.
In addition, certain of these agreements require us to maintain certain
specified financial ratios. Our ability to comply with such ratios may be
affected by events beyond our control. Under the most restrictive of these
provisions, the maximum additional debt that we could incur for investment in
hotel properties was limited to approximately $1 billion at June 30, 2000. These
covenants also may restrict our ability to engage in certain transactions. In
addition, any breach of these limitations could result in the acceleration of
most of our debt, including the Notes. We may not be able to refinance or repay
this debt in full under such circumstances.
WE WILL ENCOUNTER INDUSTRY RELATED RISKS THAT MAY ADVERSELY AFFECT OUR BUSINESS
INVESTING IN HOTEL ASSETS INVOLVES SPECIAL RISKS. We have invested only in
hotel-related assets, and our hotels are subject to all of the risks common to
the hotel industry. These risks
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could adversely affect hotel occupancy and the rates that can be charged for
hotel rooms, and generally include:
- competition from other hotels;
- construction of more hotel rooms in a particular area than needed to meet
demand;
- increases in energy costs and other travel expenses that reduce business
and leisure travel;
- adverse effects of declines in general and local economic activity;
- fluctuations in our revenue caused by the seasonal nature of the hotel
industry;
- adverse effects of a downturn in the hotel industry; and
- risks generally associated with the ownership of hotels and real estate,
as discussed below.
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the base rent and the thresholds used to compute percentage rent
under the Percentage Leases. These adjustments, unless offset by increases in
hotel revenues, would reduce the amount of rent payable to us under the
Percentage Leases and, consequently, adversely affect our results of operations.
ACQUISITION OF THE LESSEES OR THE LEASES OF OUR HOTELS MAY INVOLVE
ADDITIONAL RISKS. Currently, as a lessor of hotels, our revenue under the
percentage leases may vary as a result of factors which affect the revenues of
the hotels, but we are not subject to the risks of changes in the operating
expenses of the hotels, all of which risks are now borne by the lessees. If we
are successful in acquiring our lessees, or the leases held by them, we will
become subject to additional risks of adverse changes in operating expenses,
including but not limited to:
- wage and benefit costs;
- repair and maintenance expenses;
- the cost of liability insurance; and
- other operating expenses.
WE COULD FACE INCREASED COMPETITION. Each of our hotels competes with
other hotels in its geographic area. A number of additional hotel rooms have
been or may be built in a number of the geographic areas in which our hotels are
located, which could adversely affect the results of operations of these hotels.
According to PricewaterhouseCoopers LLP's December 1999/ January 2000
Hospitality Directions, total hotel room supply in the United States is expected
to increase by 4.3%, or approximately 503,000 rooms, from 1999 to 2000, while
the demand for hotel rooms is expected to increase only 3.2% during the same
period. An oversupply of hotel rooms could adversely affect both occupancy and
rates in the markets in which our hotels are located. A significant increase in
the supply of Midprice, Upscale and Upper Upscale hotel rooms and suites, if
demand fails to increase proportionately, could have a severe adverse effect on
our business, financial condition, and results of operations.
ACQUISITION GROWTH OPPORTUNITIES HAVE DECREASED. There has been
substantial consolidation in, and capital allocated to, the U.S. lodging
industry since the early 1990's. This generally has resulted in higher prices
for hotels. In addition, current market prices of FelCor's common stock make its
cost of equity capital relatively high. These conditions have resulted in fewer
attractive acquisition opportunities. An important part of our historical growth
strategy has been the acquisition and, in many instances, the renovation and
repositioning of hotels at less than replacement cost. Continued industry
consolidation and competition for acquisitions could adversely affect our growth
prospects. We compete for hotel investment opportunities with
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other companies, some of which have greater financial or other resources than we
have. Certain competitors may have a lower cost of capital and may be able to
pay higher prices or assume greater risks than would be prudent for us to pay or
assume.
WE MUST COMPLY WITH REQUIREMENTS OF FRANCHISE AGREEMENTS. Most of our
hotels are operated under various franchise licenses. Each license agreement
requires that the franchised hotel be maintained and operated in accordance with
certain standards. The franchisors also may require substantial improvements to
our hotels, for which we would be responsible under the Percentage Leases, as a
condition to the renewal or continuation of these franchise licenses. If a
franchise license terminates due to our failure to make required improvements or
to otherwise comply with its terms, we may be liable to the franchisor for a
termination payment. These termination payments would vary by franchise
agreement and by hotel. The loss of a substantial number of franchise licenses
and the related termination payments could have a material adverse effect on our
business, financial condition and results of operations.
OUR ABILITY TO GROW MAY BE LIMITED BY OUR ABILITY TO ATTRACT DEBT FINANCING
Since the merger with Bristol Hotel Company, we have focused on our
internal growth strategy, which includes the renovation, redevelopment and
rebranding of our hotels to achieve improved revenue performance. We may not be
able to fund growth solely from cash provided from operating activities because
we must distribute at least 95% (90% beginning in 2001) of our taxable income
each year to maintain our status as a REIT. Consequently, we must rely primarily
upon the availability of debt or equity capital to fund hotel acquisitions and
improvements. We do not presently intend to effect a public offering of equity
securities at current market prices. Consequently, we will be largely dependent
upon our ability to attract debt financing from public or institutional lenders.
We cannot assure you that we will be successful in attracting sufficient debt
financing to fund future growth at an acceptable cost. In addition, we currently
have a policy of limiting debt to not more than 50% of our investment in hotel
assets, at cost, which (unless waived or modified by our board of directors)
could also limit our ability to incur additional debt to fund our continued
growth. After giving effect to the completion of the private offering of Old
Notes and the application of the net proceeds, and share repurchases through
August 31, 2000, at June 30, 2000, our consolidated debt would have represented
42% of our investment in hotels at cost.
THE RECENT MERGERS OF PROMUS AND BRISTOL CREATE UNCERTAINTIES FOR THE FUTURE
While we expect our positive historical relationships with Promus and
Bristol to continue with their successors, the merger of Promus Hotel
Corporation into a subsidiary of Hilton Hotels Corporation, and of Bristol
Hotels & Resorts into a subsidiary of Bass plc, give rise to some uncertainties.
Changes in personnel, brand standards or operating methods could adversely
affect our relationships, result in increases in required capital expenditures,
reductions in hotel revenues or other adverse consequences of which we are not
presently aware.
WE ARE SUBJECT TO POTENTIAL TAX RISKS
THE FEDERAL INCOME TAX LAWS GOVERNING REITS ARE COMPLEX. FelCor has
operated and intends to continue to operate in a manner that is intended to
qualify it as a REIT under the federal income tax laws. The REIT qualification
requirements are extremely complicated, however, and interpretations of the
federal income tax laws governing qualification as a REIT are limited.
Accordingly, FelCor cannot be certain that it has been or will continue to be
successful in operating so as to qualify as a REIT. At any time, new laws,
interpretations or court decisions may change the federal tax laws or the
federal income tax consequences of qualification as a REIT.
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FAILURE TO MAKE REQUIRED DISTRIBUTIONS WOULD SUBJECT FELCOR TO TAX. In
order to qualify as a REIT, each year FelCor must pay out to its shareholders at
least 95% (90% beginning in 2001) of its taxable income (other than any net
capital gain). To the extent that FelCor satisfies the applicable distribution
requirement, but distributes less than 100% of its taxable income, it will be
subject to federal corporate income tax on its undistributed taxable income. In
addition, FelCor will be subject to a 4% nondeductible tax if the actual amount
it pays out to its shareholders in a calendar year is less than a minimum amount
specified under federal tax laws. FelCor's only source of funds to make such
distributions comes from distributions to FelCor from FelCor LP. Accordingly, we
may be required to borrow money or sell assets to make distributions sufficient
to enable us to pay out enough of our taxable income to satisfy the applicable
distribution requirement and to avoid corporate income tax and the 4% tax in a
particular year.
FAILURE TO QUALIFY AS A REIT WOULD SUBJECT FELCOR TO FEDERAL INCOME
TAX. If FelCor fails to qualify as a REIT, FelCor would be subject to federal
income tax on its taxable income. We might need to borrow money or sell hotels
in order to pay any such tax. If we cease to be a REIT, we no longer would be
required to distribute most of our taxable income to our shareholders. Unless
our failure to qualify as a REIT were excused under federal income tax laws, we
could not re-elect REIT status until the fifth calendar year following the year
in which we failed to qualify.
FAILURE TO HAVE DISTRIBUTED BRISTOL HOTEL COMPANY'S EARNINGS AND PROFITS IN
1998 COULD CAUSE FELCOR TO FAIL TO QUALIFY AS A REIT. At the end of any taxable
year, a REIT may not have any accumulated earnings and profits (described
generally for federal income tax purposes as cumulative undistributed net
income) from a non-REIT corporation. Arthur Andersen LLP prepared and provided
to FelCor its computation of the accumulated earnings and profits of Bristol
Hotel Company through the date of the merger of Bristol Hotel Company into
FelCor, and we made a corresponding special one-time distribution to our
shareholders. However, the determination of accumulated earnings and profits for
federal income tax purposes is extremely complex and the computations by Arthur
Andersen LLP are not binding upon the IRS. Should the IRS successfully assert
that the accumulated earnings and profits of Bristol Hotel Company were greater
than the amount so distributed by FelCor, we may fail to qualify as a REIT.
SALE OF ASSETS ACQUIRED FROM BRISTOL HOTEL COMPANY WITHIN TEN YEARS AFTER
THE MERGER WILL RESULT IN TAX. If, within ten years after the Bristol merger,
we sell any asset acquired in the merger and recognize a taxable gain on such
sale, FelCor will be taxed at the highest corporate rate on an amount equal to
the lesser of (i) the amount of gain that FelCor recognizes at the time of the
sale or (ii) the amount of gain that FelCor would have recognized if it had sold
the asset at the time of the merger for its then fair market value. The sales of
Bristol hotels that have been made to date have not resulted in any material
amount of tax liability. If FelCor is successful in selling all of the 25 hotels
shown as assets held for sale, FelCor could incur a significant tax liability,
the amount of which cannot yet be determined.
DEPARTURE OF KEY PERSONNEL, INCLUDING MR. CORCORAN, COULD ADVERSELY AFFECT OUR
FUTURE OPERATING RESULTS.
WE WILL ENCOUNTER RISKS THAT MAY ADVERSELY AFFECT REAL ESTATE OWNERSHIP
GENERAL RISKS. Our investments in hotels are subject to the numerous risks
generally associated with owning real estate, including among others:
- adverse changes in general or local economic or real estate market
conditions;
- changes in zoning laws;
- changes in traffic patterns and neighborhood characteristics;
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- increases in assessed valuation and tax rates;
- increases in the cost of property insurance;
- governmental regulations and fiscal policies;
- the potential for uninsured or underinsured property losses;
- the impact of environmental laws and regulations; and
- other circumstances beyond our control.
Moreover, real estate investments are relatively illiquid, and we may not
be able to vary our portfolio in response to changes in economic and other
conditions.
COMPLIANCE WITH ENVIRONMENTAL LAWS MAY ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Real estate owners are subject to numerous federal, state and local
environmental laws and regulations. Under these laws, a current or prior owner
of real estate may be liable for the costs of cleaning up and removing hazardous
or toxic substances found on his property, whether or not he was responsible for
their presence. In addition, if an owner of real property arranges for the
disposal of hazardous or toxic substances at another site, it may also be liable
for the costs of cleaning up and removing such substances from the disposal
site, even if it did not own or operate the disposal site. A property owner may
also be liable to third parties for personal injuries or property damage
sustained as a result of its release of hazardous or toxic substances (including
asbestos-containing materials) into the environment. Environmental laws may
require us to incur substantial expenses and limit the use of our properties. We
could be liable for substantial amounts for a failure to comply with applicable
environmental laws, which may be enforced by the government or, in certain
instances, by private parties. The existence of hazardous or toxic substances on
a property can also adversely affect the value of, and the owner's ability to
use, sell or borrow against, the property.
No assurances can be given that future or amended laws, ordinances or
regulations or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability, or that the environmental condition of the hotels will not be
affected by changes (of which we are unaware) occurring subsequent to the dates
of such audits, by the condition of properties in the vicinity of such hotels
(such as the presence of leaking underground storage tanks) or by the actions of
unrelated third parties.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT MAY ADVERSELY AFFECT OUR
FINANCIAL CONDITION. Under the Americans with Disabilities Act of 1990, all
public accommodations (including hotels) are required to meet certain federal
requirements for access and use by disabled persons. We believe that our hotels
substantially comply with the requirements of the Americans with Disabilities
Act. However, a determination that the hotels are not in compliance with that
Act could result in liability for both governmental fines and damages to private
parties. If we were required to make unanticipated major modifications to the
hotels to comply with the requirements of the Americans with Disabilities Act,
it could adversely affect our ability to pay our obligations.
UNDER CERTAIN CIRCUMSTANCES, COURTS MAY VOID THE GUARANTEES UNDER FRAUDULENT
TRANSFER LAWS
Federal and state fraudulent conveyance laws allow courts, under specific
circumstances, to void guarantees and require noteholders to return payments
received from guarantors in the event of the bankruptcy or other financial
difficulty of the subsidiary guarantor. Under federal bankruptcy law and
comparable provisions of state fraudulent transfer laws, a guarantee of the
Notes could be voided, or claims in respect of a guarantee could be subordinated
to all other
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debt of the guarantor, if, among other things, at the time the guarantor
incurred the debt evidenced by its guarantee, the guarantor:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or was rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed (or reasonably should have believed) that
it would incur, debts beyond its ability to pay such debts as they
mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measure of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor of the Notes
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
matured; or
- it could not pay its debts as they become due.
A court is likely to find that a guarantor of the Notes did not receive
fair consideration or reasonably equivalent value for its guarantee to the
extent that its liability under the guarantee is greater than the direct benefit
it received from the issuance of the Notes. By its terms, each guarantee of the
Notes will limit the liability of the guarantor to the maximum amount that it
can pay without the guarantee being deemed a fraudulent transfer. A court may
not give effect to this limitation on liability. In that event, a court may find
that the issuance of the guarantee rendered the subsidiary guarantor insolvent.
If a court avoids the guarantee or holds it unenforceable, you will cease to
have a claim against the guarantor and will be solely a creditor of FelCor LP.
If the limitation on liability is effective, the amount that the guarantor is
found to have guaranteed might be so low that there will not be sufficient funds
to pay the Notes in full.
YOU CANNOT BE SURE THAT AN ACTIVE PUBLIC TRADING MARKET WILL DEVELOP FOR THE
NOTES
The New Notes will be a new issue of securities for which there is
currently no active trading market. We do not intend to list the New Notes on
any securities exchange. Although we expect the New Notes to be eligible for
trading in the PORTAL market, we cannot assure you that an active trading market
for the New Notes will develop. The placement agents have advised us that they
intend to make a market in the Notes. However, they are not obligated to do so
and may discontinue market-making at any time without notice.
The liquidity of any market for the New Notes will depend upon various
factors, including:
- the number of holders of the New Notes;
- the interest of securities dealers in making a market for the New Notes;
- the overall market for high yield securities;
- our financial performance and prospects; and
- the prospects for companies in our industry generally.
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Accordingly, we cannot assure you that an active trading market will
develop for the New Notes. If the New Notes are traded after their initial
issuance, they may trade at a discount from the initial offering price of the
Old Notes, depending upon prevailing interest rates and other factors including
those listed above.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. Any market for the New Notes may be subject to similar
disruptions. Any such disruptions may adversely affect you as a holder of the
New Notes.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the Old Notes on September 15, 2000 to Deutsche Bank Alex. Brown,
Chase Securities Inc., Morgan Stanley Dean Witter, Banc of American Securities
LLC, Banc One Capital Markets, Inc., Credit Lyonnais Securities, and Scotia
Capital Markets as the initial purchasers, pursuant to a purchase agreement. The
initial purchasers subsequently resold the Old Notes under Rule 144A under the
Securities Act. As part of the offering of the Old Notes, we entered into a
registration rights agreement ("Registration Rights Agreement"). The
Registration Rights Agreement requires, unless the exchange offer is not
permitted by applicable law or Commission policy, that we
- use our best efforts to cause the registration statement to become
effective within 180 days following September 15, 2000; and
- upon effectiveness of the registration statement, commence the exchange
offer and keep the exchange offer open for at least 20 business days and
not more than 30 business days.
Except as provided below, upon the completion of the exchange offer, the
Company's obligations with respect to the registration of the Old Notes and the
New Notes will terminate. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement, of which this prospectus is a
part, and this summary of the material provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the complete Registration Rights Agreement. As a result of the
timely filing and the effectiveness of the Registration Statement, the Company
will not have to pay certain additional interest on the Old Notes provided in
the Registration Rights Agreement. Following the completion of the exchange
offer (except as set forth in the paragraph immediately below), holders of Old
Notes not tendered will not have any further registration rights and those Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected upon consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent to
the Company, among other things, that (i) the New Notes acquired pursuant to the
exchange offer are being obtained in the ordinary course of business of the
holder, (ii) the holder is not engaging in and does not intend to engage in a
distribution of the New Notes, (iii) the holder does not have an arrangement or
understanding with any person to participate in the distribution of the New
Notes and (iv) the holder is not an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of FelCor LP, FelCor or the Subsidiary
Guarantors. Under certain circumstances specified in the Registration Rights
Agreement, the Company may be required to file a "shelf" registration statement
for a continuous offering pursuant to Rule 415 under the Securities Act in
respect of resales of the Old Notes. See "Description of the New Notes and
Guarantees -- Registration Rights." For purposes of the foregoing, "Transfer
Restricted
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Securities" means each Old Note until (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for an New Note in the exchange
offer, (ii) following the exchange by a broker-dealer in the exchange offer of
an Old Note for a New Note, the date on which such New Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of this prospectus, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with such "shelf" registration statement or (iv) the date on which such Old Note
is distributed to the public pursuant to Rule 144 under the Act or may be
distributed to the public pursuant to Rule 144(k) under the Act. See
"-- Procedures for Tendering Old Notes."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
exchange offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any holder which is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act, or a broker-dealer who purchased Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of business of the holder and the
holder does not have an arrangement or understanding with any person to
participate in the distribution of such New Notes. Any holder who tenders in the
exchange offer for the purpose of participating in a distribution of the New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." Broker-dealers who acquired Old Notes directly from us
and not as a result of market-making activities or other trading activities may
not rely on the staff's interpretations discussed above or participate in the
exchange offer and must comply with the registration and prospectus delivery
requirements of the Securities Act in order to sell the Old Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the completion of the exchange offer, holders of Old Notes who
did not tender their Old Notes, or who did not properly tender their Old Notes,
will not have any further registration rights and such Old Notes will continue
to be subject to restrictions on transfer. Accordingly, the liquidity of the
market for a holder's Old Notes could be adversely affected upon expiration of
the exchange offer if such holder elects to not participate in the exchange
offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
and all Old Notes that are validly tendered on or prior to 5:00 p.m. New York
City time, on the Expiration Date. We will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of the outstanding Old Notes
accepted in the exchange offer. Holders who have tendered their Old Notes may
withdraw their tender of Old Notes at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The exchange offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
exchange offer is subject to the terms and provisions of the Registration Rights
Agreement. See "-- Conditions of the Exchange Offer."
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Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes they hold, provided that they appropriately
indicate this fact on the letter of transmittal accompanying the tendered Old
Notes.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes, except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
As of the date of this prospectus, $400 million in aggregate principal
amount of the Old Notes is outstanding. As of September 15, 2000, Cede & Co.,
was the only registered holder of the Old Notes. Cede & Co. held the Old Notes
for 31 of its participants. We have fixed the close of business on October 24,
2000 as the record date for purposes of determining the persons to whom we will
mail this prospectus and the letter of transmittal initially. Only a holder of
the Old Notes, or such holder's legal representative or attorney-in-fact, may
participate in the exchange offer. We will not fix a record date for determining
holders of the Old Notes entitled to participate in the exchange offer. We
believe that, as of the date of this prospectus, no such holder is our
affiliate, as defined in Rule 405 under the Securities Act.
We will be deemed to have accepted validly tendered Old Notes when, as and
if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders of Old Notes and for
the purpose of receiving the New Notes from us.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the exchange offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be November 30, 2000, at 5:00 p.m., New York City
time, unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date shall be the latest date and time to which the exchange
offer is extended, but shall not be later than December 11, 2000.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our sole discretion,
- to delay accepting any Old Notes,
- to extend the exchange offer,
- if any of the conditions set forth below under "-- Conditions of the
Exchange Offer" shall not have been satisfied, to terminate the exchange
offer, by giving oral or written notice of such delay, extension, or
termination to the exchange agent, and
- to amend the terms of the exchange offer in any manner.
27
<PAGE> 32
If we amend the exchange offer in a manner we determine to constitute a
material change, we will promptly disclose such amendments by means of a
prospectus supplement that we will distribute to the registered holders of the
Old Notes. Modification of the exchange offer, including, but not limited to,
- extension of the period during which the exchange offer is open, and
- satisfaction of the conditions set forth below under "-- Conditions of
the Exchange Offer"
may require that at least five business days remain in the exchange offer.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the exchange offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for the Old Notes, the Company determines that the exchange offer violates
applicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
ACCRUED INTEREST
The New Notes will bear interest at a rate equal to 9 1/2% per annum, which
interest shall accrue from September 15, 2000 or from the most recent interest
payment date with respect to the Old Notes to which interest was paid or duly
provided for. See "Description of the New Notes and Guarantees -- Principal,
Maturity and Interest."
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of Old Notes may tender the Old Notes in the exchange offer.
Except as set forth under "-- Book Entry Transfer," to tender in the exchange
offer a holder must complete, sign, and date the letter of transmittal, or a
copy thereof, have the signatures thereon guaranteed if required by the letter
of transmittal, and mail or otherwise deliver the letter of transmittal or copy
to the Exchange Agent prior to the expiration date. In addition, (i)
certificates for the Old Notes must be received by the Exchange Agent along with
the letter of transmittal prior to the expiration date, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
expiration date or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the letter of
transmittal and other required
28
<PAGE> 33
documents must be received by the Exchange Agent at the address set forth under
"-- The Exchange Agent; Assistance" prior to the expiration date.
The tender by a holder that is not withdrawn before the expiration date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the letter
of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUSTS COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker-dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
Old Notes tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the letter of transmittal or (ii) for the
account of an Eligible Institution. If signatures on a letter of transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or an "eligible guarantor
institution" with the meaning on Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the letter of transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the letter of
transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties.
29
<PAGE> 34
Unless waived, any defects or irregularities in connection with tenders of Old
Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify holders of defects or irregularities with respect
to tenders of Old Notes, neither the Company, the Exchange Agent, nor any other
person shall incur any liability for failure to give such notification. Tenders
of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following November 30, 2000, unless the
exchange offer is extended.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
expiration date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the exchange offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the exchange offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the registered holder, (ii) the holder is
not engaging in and does not intend to engage in a distribution of such New
Notes, (iii) the holder does not have an arrangement or understanding with any
person to participate in the distribution of such New Notes and (iv) the holder
is not an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of an
agreement to be bound by the letter of transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the exchange offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-
30
<PAGE> 35
Entry Transfer Facility's procedures for transfer. However, although delivery of
Old Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the letter of transmittal or copy thereof, with any required signature
guarantees and any other required documents, must, in any case other than as set
forth in the following paragraph, be transmitted to and received by the Exchange
Agent at the address set forth under "-- Exchange Agent; Assistance" on or prior
to the expiration date or the guaranteed delivery procedures described below
must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
reflect that the participant acknowledges its receipt of and agrees to be bound
by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available, or who cannot deliver their Old Notes or any other
documents required by the letter of transmittal to the Exchange Agent prior to
the expiration date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the letter of transmittal. Pursuant to such
procedures:
(1) the holder tenders through an eligible institution and signs a
notice of guaranteed delivery,
(2) on or prior to the Expiration Date, the Exchange Agent receives
from the holder and the eligible institution a written or facsimile copy of
a properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by the Company, setting forth the name
and address of the holder, the certificate number or numbers of the
tendered Old Notes, and the principal amount of tendered Old Notes, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the date of delivery of the notice of guaranteed
delivery, the tendered Old Notes, a duly executed letter of transmittal and
any other required documents will be deposited by the eligible institution
with the Exchange Agent, and
(3) such properly completed and executed documents required by the
letter of transmittal and the tendered Old Notes in proper form for
transfer are received by the Exchange Agent within five business days after
the Expiration Date.
Any holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the notice of guaranteed delivery and letter of transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept any and all Old Notes that are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New
Notes issued pursuant to the exchange offer will be delivered promptly after
acceptance of the Old Notes. For purposes of the exchange offer, we shall be
deemed to have accepted validly tendered Old Notes, when, as, and if we have
given oral or written notice thereof to the Exchange Agent.
31
<PAGE> 36
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after the Exchange
Agent timely receives such Old Notes, a properly completed and duly executed
letter of transmittal and all other required documents; provided, however, we
reserve the absolute right to waive any defects or irregularities in the tender
or conditions of the exchange offer. If we do not accept any tendered Old Notes
for any reason, we will return such unaccepted Old Notes without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the exchange offer.
WITHDRAWAL RIGHTS
Holders may withdraw tenders of Old Notes at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. For the withdrawal to be effective,
the Exchange Agent must receive a written notice of withdrawal at its address
set forth on the back cover page of this prospectus. The notice of withdrawal
must:
- specify the name of the person who tendered the Old Notes to be withdrawn
(the "Depositor");
- identify the Old Notes to be withdrawn, including the certificate number
or numbers and principal amount of withdrawn Old Notes;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such Old Notes were tendered,
including any required signature guarantees, or be accompanied by a bond
power in the name of the person withdrawing the tender, in satisfactory
form as determined by us in our sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an eligible
institution together with the other documents required upon transfer by
the indenture; and
- specify the name in which such Old Notes are to be registered, if
different from the person who deposited the Old Notes, pursuant to such
documents of transfer.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such withdrawal notices in our sole discretion.
The Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any Old Notes which have been
tendered for exchange but which are withdrawn will be returned to their holder
without cost to such holder as soon as practicable after withdrawal. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering Old Notes" at any time on or prior
to the Expiration Date.
32
<PAGE> 37
THE EXCHANGE AGENT; ASSISTANCE
SunTrust Bank is the Exchange Agent. All tendered Old Notes, executed
letters of transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of this prospectus, the letter of transmittal and other
related documents should be addressed to the exchange agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
SunTrust Bank
Attention: George T. Hogan,
Corporate Trust Department
25 Park Place, 24th Floor
Atlanta, Georgia 30303-2900
or
SunTrust Bank
c/o Harris Trust of New York
Attention: Corporate Trust Department
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
BY HAND OR OVERNIGHT COURIER:
SunTrust Bank
Attention: George T. Hogan,
Corporate Trust Department
25 Park Place, 24th Floor
Atlanta, Georgia 30303-2900
or
SunTrust Bank
c/o Harris Trust of New York
Attention: Mary Ann Luisi, Corporate Trust Department
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
BY FACSIMILE:
(404) 588-7335 (GA)
or
(212) 701-7648 (NY)
Confirm by Telephone: (404) 588-7591 (GA); (212) 701-7673 (NY)
33
<PAGE> 38
FEES AND EXPENSES
We will bear all expenses incident to the consummation of the exchange
offer and compliance with the Registration Rights Agreement, including, without
limitation: (1) all registration and filing fees, including fees and expenses of
compliance with state securities or Blue Sky laws; (2) printing expenses,
including expenses of printing certificates for the New Notes in a form eligible
for deposit with DTC and of printing prospectuses; (3) messenger, telephone and
delivery expenses; (4) fees and disbursements of our counsel; (5) fees and
disbursements of independent certified public accountants; (6) rating agency
fees; (7) our internal expenses, including all salaries and expenses of our
officers and employees performing legal or accounting duties; and (8) fees and
expenses, if any, incurred in connection with the listing of the New Notes on a
securities exchange.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption is not submitted
with the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
We will record the New Notes at the same carrying value as the Old Notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize any gain or loss for accounting purposes. We will amortize
expenses of the exchange offer over the term of the New Notes.
34
<PAGE> 39
CAPITALIZATION
The following table sets forth the capitalization of FelCor, L.P. at June
30, 2000, and as adjusted to reflect (i) the issuance of the Old Notes and the
application of the net proceeds, (ii) the repurchase of $9.2 million of FelCor's
common stock from July 1, 2000 through August 31, 2000 and (iii) the writeoff of
$3.4 million of unamortized loan costs associated with the term loan repaid with
the proceeds of the Old Notes.
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------------------------
ACTUAL ADJUSTMENTS(1) AS ADJUSTED(1)
---------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of mortgage and
capital lease debt............... $ 20,866 $ $ 20,866
Current portion of other debt....... 10,383 10,383
Current portion of term loan........ 1,000 (1,000)
---------- --------- ----------
Total short-term debt....... $ 32,249 $ (1,000) $ 31,249
========== ========= ==========
Long-term debt(2):
Line of credit...................... $ 410,000 $ (4,403) $ 405,597
Term loan........................... 373,000 (373,000)
Existing senior notes(3)
Due 2004......................... 125,000 125,000
Due 2007......................... 175,000 175,000
Old Notes........................... 400,000 400,000
Mortgage and capital lease debt..... 768,126 768,126
Other debt.......................... 650 650
---------- --------- ----------
Total long-term debt........ 1,851,776 22,597 1,874,373
Redeemable units at redemption value.. 151,548 151,548
Preferred units....................... 294,515 294,515
Partners' capital..................... 1,669,188 (12,668) 1,656,520
---------- --------- ----------
Total capitalization........ $3,967,027 $ 9,929 $3,976,956
========== ========= ==========
</TABLE>
------------
(1) The adjustments as presented do not include approximately $131 million
reduction in the line of credit, and a $5 million reduction in other
mortgage debt, from the pro forma sale of 25 non-strategic hotels, for which
we had no binding sale agreements as of the date of this prospectus.
(2) The line of credit, term loan, existing 7 3/8% and 7 5/8% senior notes due
2004 and 2007, and the Notes are effectively subordinated to the mortgage
debt.
(3) Does not reflect approximately $1.3 million in aggregate unamortized
discount.
35
<PAGE> 40
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION
The following tables set forth selected historical and pro forma
consolidated financial information for FelCor Lodging Limited Partnership and
FelCor Lodging Trust Incorporated. The selected historical information is
presented for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and
the six months ended June 30, 1999 and 2000. We derived the historical financial
information for the years ended December 31, 1995, 1996, 1997, 1998 and 1999
from our financial statements and the notes thereto, audited by
PricewaterhouseCoopers LLP, independent accountants. The selected historical
financial information as of and for the six months ended June 30, 1999 and 2000
have been derived from the unaudited financial statements which have been
prepared by management on the same basis as the audited financial statements
and, in the opinion of management, include all adjustments consisting of normal
recurring accruals that are considered necessary for a fair presentation of the
results for such periods. The results of operations for the six months ended
June 30, 1999 and 2000 are not necessarily indicative of results to be
anticipated for the entire year. The selected unaudited pro forma consolidated
financial information for the year ended December 31, 1999, the twelve months
ended June 30, 2000, and the six months ended June 30, 2000, are presented for
illustrative purposes only and are not necessarily indicative of what our actual
results of operations would have been had the transactions described below been
consummated on the date indicated. You should read the following information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Pro Forma Consolidated Statements of Operations,
Balance Sheets and Notes thereto, and the Consolidated Financial Statements and
Notes thereto included elsewhere in this prospectus or incorporated herein by
reference.
The pro forma consolidated financial information is presented as if all of
the following occurred on January 1, 1999: (i) the issuance of $400 million of
the Old Notes and application of the net proceeds, (ii) the completion of the
other financing transactions which occurred in 2000, (iii) the repurchase by
FelCor of $164.3 million of its common stock through August 31, 2000, and (iv)
the sale of 25 non-strategic hotels identified in the second quarter of 2000.
36
<PAGE> 41
FELCOR LODGING LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER UNIT AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ 25,991 $100,944 $ 176,651 $ 339,617 $ 504,001
Income (loss) before
nonrecurring items.......... $ 15,322 $ 48,881 $ 69,652 $ 123,937 $ 136,653
Net income (loss)............. $ 15,322 $ 46,527 $ 69,467 $ 121,339 $ 135,776
Net income (loss) applicable
to unitholders.............. $ 15,322 $ 38,793 $ 57,670 $ 99,916 $ 111,041
DILUTED EARNINGS PER UNIT:
Income (loss) applicable to
unitholders before
extraordinary charge........ $ 1.70 $ 1.58 $ 1.68 $ 1.95 $ 1.59
Net income (loss) applicable
to unitholders.............. $ 1.70 $ 1.49 $ 1.67 $ 1.87 $ 1.57
OTHER DATA:
Cash distributions per unit... $ 1.84 $ 1.92 $ 2.10 $ 2.545 $ 2.20
Funds From Operations(2)...... $ 20,707 $ 77,141 $ 129,815 $ 217,363 $ 286,895
EBITDA(3)..................... $ 22,869 $ 88,355 $ 165,613 $ 306,361 $ 432,689
Weighted average units
outstanding................. 8,989 29,306 39,157 58,013 75,251
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 8.6x 3.5x 2.6x 2.2x 1.8x
Adjusted ratio of earnings to
combined fixed charges and
preferred distributions(5).... 8.6x 3.5x 2.6x 2.2x 1.8x
BALANCE SHEET DATA:
Total assets................... $548,359 $978,788 $1,673,364 $4,175,383 $4,255,751
Debt.......................... $ 19,666 $239,425 $ 476,819 $1,594,734 $1,833,954
<CAPTION>
PRO FORMA
SIX MONTHS (UNAUDITED)
ENDED -----------------------------------------
JUNE 30, TWELVE MONTHS SIX MONTHS
(UNAUDITED) YEAR ENDED ENDED ENDED
----------------------- DECEMBER 31, JUNE 30, JUNE 30,
1999 2000(1) 1999 2000 2000
---------- ---------- ------------ ------------- ----------
(IN THOUSANDS EXCEPT PER UNIT AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ 262,104 $ 264,670 $480,885 $484,600 $ 253,438
Income (loss) before
nonrecurring items.......... $ 81,521 $ (13,247) $107,608 $ 87,351 $ 44,685
Net income (loss)............. $ 80,408 $ (12,372) $107,844 $ 88,462 $ 45,560
Net income (loss) applicable
to unitholders.............. $ 68,040 $ (24,730) $ 83,109 $ 63,737 $ 33,202
DILUTED EARNINGS PER UNIT:
Income (loss) applicable to
unitholders before
extraordinary charge........ $ 0.97 $ (0.39) $ 1.34 $ 1.03 $ 0.54
Net income (loss) applicable
to unitholders.............. $ 0.95 $ (0.39) $ 1.34 $ 1.03 $ 0.54
OTHER DATA:
Cash distributions per unit... $ 1.10 $ 1.10 $ 2.20 $ 2.20 $ 1.10
Funds From Operations(2)...... $ 154,232 $ 149,380 $251,085 $257,316 $ 140,644
EBITDA(3)..................... $ 223,590 $ 238,753 $412,871 $429,143 $ 229,229
Weighted average units
outstanding................. 76,008 67,987 58,926 57,219 55,660
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............ 2.0x .9x 1.6x 1.5x 1.5x
Adjusted ratio of earnings to
combined fixed charges and
preferred distributions(5).... 2.0x 1.6x 1.6x 1.5x 1.5x
BALANCE SHEET DATA:
Total assets................... $4,280,626 $4,176,765 $4,050,047
Debt.......................... $1,712,540 $1,882,743 $1,768,693
</TABLE>
FELCOR LODGING TRUST INCORPORATED
<TABLE>
<CAPTION>
ACTUAL
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 25,991 $100,944 $ 176,651 $ 339,617 $ 504,001
Income (loss) before
nonrecurring item............ $ 12,191 $ 43,291 $ 63,835 $ 117,437 $ 131,957
Net income (loss).............. $ 12,191 $ 40,937 $ 63,650 $ 114,839 $ 131,080
Net income (loss) applicable to
common shareholders.......... $ 12,191 $ 33,203 $ 51,853 $ 93,416 $ 106,345
DILUTED EARNINGS PER SHARE:
Income (loss) applicable to
common shareholders before
extraordinary charge......... $ 1.69 $ 1.53 $ 1.65 $ 1.92 $ 1.59
Net income (loss) applicable to
common shareholders.......... $ 1.69 $ 1.43 $ 1.64 $ 1.86 $ 1.57
OTHER DATA:
Cash dividends per common
share........................ $ 1.84 $ 1.92 $ 2.10 $ 2.545 $ 2.20
Funds From Operations(2)....... $ 20,707 $ 77,141 $ 129,815 $ 217,363 $ 286,895
EBITDA(3)...................... $ 22,869 $ 88,355 $ 165,613 $ 306,361 $ 432,689
Weighted average common shares
and units outstanding........ 8,989 29,306 39,157 58,013 75,257
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............. 8.6x 3.5x 2.6x 2.2x 1.8x
Adjusted ratio of earnings to
combined fixed charges and
preferred distributions(5)..... 8.6x 3.5x 2.6x 2.2x 1.8x
BALANCE SHEET DATA:
Total assets................... $548,359 $978,788 $1,673,364 $4,175,383 $4,255,751
Debt........................... $ 19,666 $239,425 $ 476,819 $1,594,734 $1,833,954
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------------------
SIX MONTHS ENDED TWELVE
MONTHS SIX MONTHS
JUNE 30,
(UNAUDITED) YEAR ENDED ENDED ENDED
----------------------- DECEMBER 31, JUNE 30, JUNE 30,
1999 2000(1) 1999 2000 2000
---------- ---------- ------------ -------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 262,104 $ 264,670 $480,885 $484,600 $ 253,438
Income (loss) before
nonrecurring item............ $ 78,682 $ (10,848) $103,586 $ 82,698 $ 4 1,388
Net income (loss).............. $ 77,569 $ (9,973) $103,822 $ 83,809 $ 42,263
Net income (loss) applicable to
common shareholders.......... $ 65,201 $ (22,331) $ 79,087 $ 59,084 $ 29,905
DILUTED EARNINGS PER SHARE:
Income (loss) applicable to
common shareholders before
extraordinary charge......... $ 0.97 $ (0.39) $ 1.34 $ 1.03 $ 0.54
Net income (loss) applicable to
common shareholders.......... $ 0.96 $ (0.39) $ 1.34 $ 1.03 $ 0.54
OTHER DATA:
Cash dividends per common
share........................ $ 1.10 $ 1.10 $ 2.20 $ 2.20 $ 1.10
Funds From Operations(2)....... $ 154,232 $ 149,380 $251,085 $257,316 $ 140,644
EBITDA(3)...................... $ 223,590 $ 238,753 $412,871 $429,143 $ 229,229
Weighted average common shares
and units outstanding........ 76,008 67,987 58,926 57,219 55,660
Ratio of earnings to combined
fixed charges and preferred
distributions(4)............. 2.0x .9x 1.6x 1.5x 1.5x
Adjusted ratio of earnings to
combined fixed charges and
preferred distributions(5)..... 2.0x 1.6x 1.6x 1.5x 1.5x
BALANCE SHEET DATA:
Total assets................... $4,280,676 $4,176,765 $4,050,047
Debt........................... $1,712,540 $1,882,743 $1,768,693
</TABLE>
37
<PAGE> 42
------------
(1) In the second quarter of 2000 the Company recorded a $63 million one-time
reserve for the sale of non-strategic hotel assets, which is reflected in
the income statements presented for the period.
(2) The Company considers Funds From Operations to be a key measure of a REIT's
performance which should be considered along with, but not as an alternative
to, net income and cash flow as a measure of operating performance and
liquidity.
The White Paper on Funds From Operations approved by the Board of Governors
of NAREIT defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring
which would be extraordinary items in accordance with GAAP and sales of
depreciable operating properties, plus real estate related depreciation and
amortization and after comparable adjustments for the Company's portion of
these items related to unconsolidated entities and joint ventures. The
Company believes that Funds From Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities, and investing activities,
it provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures, and to fund other cash
needs. The Company computes Funds From Operations in accordance with
standards established by NAREIT, except that the Company adds back rent
deferred under SAB 101 to derive Funds From Operations. This may not be
comparable to Funds From Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition, that
interpret the current NAREIT definition differently than the Company or that
do not adjust Funds From Operations for rent deferred under SAB 101. Funds
From Operations does not represent cash generated from operating activities
determined by GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions. Funds From
Operations may include funds that may not be available for management's
discretionary use due to requirements to conserve funds for capital
expenditures and property acquisitions and other commitments and
uncertainties.
The computation of Funds From Operations for FelCor LP and FelCor yields the
same results. The following table details the computation of Funds From
Operations for FelCor LP.
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)....................... $15,322 $46,527 $ 69,467 $121,339 $135,776 $ 80,408 $(12,372)
Deferred rent........................... 18,604
Reserve for assets held for sale........ 63,000
Series B redeemable preferred
distributions.......................... (8,373) (12,937) (6,468) (6,468)
Extraordinary charge from write off of
deferred financing fees................ 2,354 185 3,075 1,113 1,113
Depreciation............................ 5,232 26,544 50,798 90,835 152,948 74,162 81,480
Depreciation from unconsolidated
entities............................... 153 1,716 9,365 10,487 9,995 5,017 5,136
------- ------- -------- -------- -------- -------- --------
Funds From Operations (FFO)............. $20,707 $77,141 $129,815 $217,363 $286,895 $154,232 $149,380
======= ======= ======== ======== ======== ======== ========
Weighted average units outstanding...... 8,989 29,306 39,157 58,013 75,251 76,008 67,987
<CAPTION>
PRO FORMA
----------------------------------
TWELVE SIX
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)....................... $107,844 $ 88,462 $ 45,560
Deferred rent........................... 18,604 18,604
Reserve for assets held for sale........
Series B redeemable preferred
distributions.......................... (12,937) (12,937) (6,468)
Extraordinary charge from write off of
deferred financing fees................
Depreciation............................ 146,183 153,073 77,812
Depreciation from unconsolidated
entities............................... 9,995 10,114 5,136
-------- -------- --------
Funds From Operations (FFO)............. $251,085 $257,316 $140,644
======== ======== ========
Weighted average units outstanding...... 58,926 57,219 55,660
</TABLE>
38
<PAGE> 43
(3) EBITDA is computed by adding FFO, interest expense, the Company's portion of
interest expense from unconsolidated entities, amortization expense, and the
Company's Series B redeemable preferred distributions. The computation of
EBITDA for FelCor LP and FelCor yields the same result. EBITDA is presented
because it provides useful information regarding our ability to service
debt. EBITDA should not be considered as an alternative measure of operating
results or cash flow from operations (as determined in accordance with
GAAP). EBITDA as presented by us may not be comparable to other similarly
titled measures used by other companies. A reconciliation of Funds From
Operations to EBITDA is as follows:
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations................... $20,707 $77,141 $129,815 $217,363 $286,895 $154,232 $149,380
Interest expense........................ 2,004 9,803 28,792 73,182 125,435 59,172 77,644
Interest expense from unconsolidated
entities............................... 818 5,895 6,521 6,729 3,343 4,787
Amortization expense.................... 158 593 1,111 922 693 375 474
Series B redeemable preferred
distributions.......................... 8,373 12,937 6,468 6,468
------- ------- -------- -------- -------- -------- --------
EBITDA.................................. $22,869 $88,355 $165,613 $306,361 $432,689 $223,590 $238,753
======= ======= ======== ======== ======== ======== ========
<CAPTION>
PRO FORMA
----------------------------------
TWELVE SIX
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Funds From Operations................... $251,085 $257,316 $140,644
Interest expense........................ 141,427 149,925 76,856
Interest expense from unconsolidated
entities............................... 6,729 8,173 4,787
Amortization expense.................... 693 792 474
Series B redeemable preferred
distributions.......................... 12,937 12,937 6,468
-------- -------- --------
EBITDA.................................. $412,871 $429,143 $229,229
======== ======== ========
</TABLE>
A reconciliation of EBITDA and Consolidated EBITDA as defined in the Notes
is as follows:
<TABLE>
<CAPTION>
ACTUAL
------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA................................... $22,869 $88,355 $165,613 $306,361 $432,689 $223,590 $238,753
Deduct --
Interest expense from unconsolidated
entities.............................. (818) (5,895) (6,521) (6,729) (3,343) (4,787)
Income from unconsolidated entities..... (513) (2,010) (6,963) (7,017) (8,484) (3,837) (5,648)
Gain on asset sale...................... (477) (236) (875)
Add --
Distributions from unconsolidated
entities.............................. 1,954 4,211 19,066 19,581 13,297 11,708
------- ------- -------- -------- -------- -------- --------
Consolidated EBITDA...................... $22,356 $87,481 $156,966 $311,412 $436,821 $229,707 $239,151
======= ======= ======== ======== ======== ======== ========
<CAPTION>
PRO FORMA
----------------------------------
TWELVE SIX
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA................................... $412,871 $429,143 $229,229
Deduct --
Interest expense from unconsolidated
entities.............................. (6,729) (8,173) (4,787)
Income from unconsolidated entities..... (8,484) (10,295) (5,648)
Gain on asset sale...................... (236) (1,111) (875)
Add --
Distributions from unconsolidated
entities.............................. 19,581 17,992 11,708
-------- -------- --------
Consolidated EBITDA...................... $417,003 $427,556 $229,627
======== ======== ========
</TABLE>
(4) For the purpose of computing the ratio of earnings to combined fixed charges
and preferred distributions, earnings consist of income from continuing
operations plus fixed charges and minority interest in FelCor LP (with
respect to FelCor), excluding capitalized interest, and fixed charges
consist of interest, whether expensed or capitalized, and amortization of
loan costs.
(5) The adjusted ratio of earnings to combined fixed charges and preferred
distributions is computed the same as described in footnote (4) except that
income from continuing operations is adjusted to add back a $63 million
one-time reserve for the sale of non-strategic hotel assets recorded in the
second quarter of 2000.
39
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
FelCor Lodging Limited Partnership and its subsidiaries (the "Company"), at
June 30, 2000, owned interests in 188 hotels with nearly 50,000 rooms and
suites. Additional organizational information relating to the Company, and the
definitions of certain capitalized terms, are contained in the Notes to
Consolidated Financial Statements of FelCor Lodging Limited Partnership
appearing elsewhere in this prospectus or incorporated herein by reference.
The Company is the owner of the largest number of Embassy Suites, Crowne
Plaza, Holiday Inn and independently owned Doubletree-branded hotels in the
world.
At June 30, 2000, the Company leased 86 of the hotels to DJONT Operations,
L.L.C., a Delaware limited liability company, or a consolidated subsidiary
thereof (collectively "DJONT"), and leased 100 of the hotels to Bristol Hotels &
Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with
DJONT, the "Lessees"). Two hotels were operated without a lease.
The following table provides a schedule of the hotels, by brand, operated
by each of the Company's Lessees at June 30, 2000:
<TABLE>
<CAPTION>
NOT OPERATED
BRAND DJONT BRISTOL UNDER A LEASE TOTAL
----- ----- ------- ------------- -----
<S> <C> <C> <C> <C>
Embassy Suites................................ 60 60*
Holiday Inn................................... 43 1 44
Crowne Plaza and Crowne Plaza Suites.......... 18 18
Doubletree and Doubletree Guest Suites........ 14 14
Holiday Inn Select............................ 10 10
Sheraton and Sheraton Suites.................. 10 10
Hampton Inn................................... 9 9
Holiday Inn Express........................... 5 5
Fairfield Inn................................. 5 5
Harvey Hotel.................................. 4 4
Independents.................................. 2 1 3
Courtyard by Marriott......................... 2 2
Hilton Suites................................. 1 1
Homewood Suites............................... 1 1
Four Points by Sheraton....................... 1 1
Westin........................................ 1 1
-- --- -- ---
Total Hotels........................ 86 100 2 188
== === == ===
</TABLE>
------------
* Includes one Embassy Suites hotel that was sold on September 27, 2000.
The hotels are located in 35 states and Canada with concentrations in Texas
(41), California (20), Florida (18), and Georgia (15).
The principal factors affecting the Company's results of operations are
changes in room and suite revenues reflected by revenue per available room
("RevPAR"), renovations, redevelopments, and rebrandings of hotels and
acquisitions. On July 28, 1998, the Company completed the acquisition of the
real estate assets of Bristol Hotel Company through a merger, which resulted in
the net addition of 107 hotels, valued at approximately $2 billion, to the
Company's portfolio. In addition to the assets acquired in the merger, the
Company acquired ownership interests in 16 hotels in 1998 and one additional
hotel in 1999. Nine of the hotels acquired in the merger which did not meet the
Company's investment criteria were sold in 1998 and 1999.
40
<PAGE> 45
In the second quarter of 2000, the Company identified 25 of its hotels as
non-strategic hotels to be sold. The Company estimates that the aggregate net
sales proceeds from these hotels will approximate $136 million. In connection
with the decision to sell these hotels, the Company has recorded a one time
reserve of $63 million. Additionally, on September 27, 2000 the Company sold its
Embassy Suites hotel, Los Angeles International Airport (North), California for
a gross sale price of approximately $24 million, resulting in a gain on sale of
approximately $2.5 million.
In 1999, the Company completed the major portion of its program of
renovation, redevelopment, and rebranding of hotels, undertaken to improve
under-performing assets and increase revenues. The Company and, prior to the
merger, Bristol Hotel Company, spent nearly $220 million in 1998 on renovations,
redevelopments, rebrandings, room additions to existing hotels, and other hotel
improvements. In 1999 the Company completed renovations at 44 hotels during the
year, totaling $193 million. Twenty-eight hotels were undergoing renovation at
the end of 1999 and renovation expenditures on the hotel portfolio totaled $177
million during the year. A total of eight hotels were rebranded during 1999.
Through June 30, 2000, the Company completed renovations at eight hotels.
Thirteen hotels were undergoing renovation at June 30, 2000. Renovation
expenditures on the hotel portfolio totaled $22.9 million through June 30, 2000,
and the Company expects to spend an additional $35.0 million on renovations
through the remainder of 2000. On January 1, 2000, two Doubletree Guest Suites
hotels were rebranded as Embassy Suites hotels. In 2000, the Company started
construction on a 90 room addition at its Holiday Inn -- French Quarter hotel
located on Royal Street in New Orleans, Louisiana, with an expected cost of $10
million. Management believes that its strategy of renovating, redeveloping and
rebranding selected hotels continues to be effective in improving revenue
performance.
Historically the Company has been financed primarily with equity, resulting
in a conservative financial structure. The Company's emphasis on maintaining
this conservative approach is evidenced in part, by the following, as of June
30, 2000:
- Interest coverage ratio of 2.9x
- Consolidated debt equal to 41% of its investment in hotels at cost
- Fixed interest rate debt comprising 68% of total debt
- Secured mortgage debt to total assets of 19%
- Debt of approximately $17 million maturing in 2000
The Company's historical results of operations for the six months ended
June 30, 2000 and 1999 and the years ended 1999, 1998, and 1997 are summarized
as follows (in millions, except percentages and hotel counts):
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
YEARS ENDED SIX MONTHS ENDED ---------------------------------------
DECEMBER 31, JUNE 30, SIX MONTHS
------------------------ ------------------ ENDED JUNE 30,
1999 1998 1997 2000 1999 99 VS. 98 98 VS. 97 99 VS. 2000
------ ------ ------ ------ ------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels owned at end of period........... 188 193 73 188 187 (2.6)% 164.4% 0.1%
Revenues................................ $504.0 $339.6 $176.7 $264.7(1) $262.1 48.4% 92.2% 1.0%
Income (loss) before nonrecurring
items.................................. $136.7 $123.9 $ 69.7 $(13.2)(2) $ 81.5 10.3% 77.8% (116.2)%(2)
Net income (loss) applicable to
unitholders............................ $111.0 $ 99.9 $ 57.7 $(24.7)(2) $ 68.0 11.1% 73.1% (136.3)%(2)
Funds From Operations (FFO)............. $286.9 $217.4 $129.8 $149.4 $154.2 32.0% 67.5% (3.1)%
</TABLE>
------------
(1) Revenues for 2000 do not include rent deferred under Staff Accounting
Bulletin 101 of $18.6 million. This deferred rent is expected to be fully
earned and recognized as Percentage Lease Revenue by the end of 2000. There
was no deferred rent recorded in 1999.
(2) Includes a one time reserve of $63 million established for the proposed sale
of 25 non-strategic hotels.
41
<PAGE> 46
RESULTS OF OPERATIONS
FelCor Lodging Limited Partnership -- Actual
Comparison of the Six Months Ended June 30, 2000 and 1999
For the six months ended June 30, 2000 and 1999, the Company had revenues
of $264.7 million and $262.1 million, respectively, consisting primarily of
Percentage Lease revenues of $256.3 million and $256.9 million, respectively.
The reason for the decline in Percentage Lease revenues is approximately $18.6
million of rent deferred in 2000 but not in 1999.
Effective January 2000, Percentage Leases for 68 of the Company's 188
hotels were changed to provide for the computation of rent on an annual, rather
than quarterly basis. This should result in no change in annual Percentage Rent
or cash flows. However, this change requires the deferral of Percentage Lease
revenue until annual thresholds are exceeded in accordance with Staff Accounting
Bulletin No. 101 (SAB 101). The deferred rent is expected to be fully earned and
recognized as Percentage Lease revenue by the end of 2000. After adding back
rent deferred under SAB 101, Percentage Lease revenues for the six months ended
June 30, 2000, increased 7.0% to $274.9 million as compared to the six months
ended June 30, 1999. The reason for this comparative increase is attributed to
an overall increase in RevPAR of 7.7%. This change in hotel RevPAR is more fully
discussed under "The Hotels" section of this "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Total expenses increased $97.3 million for the six months ended June 30,
2000, from $180.6 million to $277.9 million, compared to the same period in
1999. Since there was no deferred rent recorded in 1999, for comparison purposes
deferred rent recorded in 2000 has been added back to total revenue for the
computation of expenses as a percent of total revenue. Total expenses as a
percentage of total revenue after adding back deferred rent, increased to 98.1%
for the six months ended June 30, 2000, from 68.9% in the same period of 1999.
Included in total expenses is a one-time reserve of $63.0 million related
to the 25 non-strategic hotels the Company has identified as held for sale. This
reserve represents the difference between the book value and the estimated
market value of the hotels.
Other major components of the increase in expenses, as a percentage of
total revenue after adding back deferred rent, were interest expense and land
lease expenses.
Interest expense increased, as a percentage of total revenue, after adding
back deferred rent, to 27.4% in the six months ended June 30, 2000, from 22.6%
in the six months ended June 30, 1999. This increase in interest expense is
attributed to the following:
- increased debt, which was used to finance renovations and to fund $155
million of stock repurchases in 1999 and 2000,
- higher average interest rates for debt refinanced in 2000 to extend
maturities and convert variable rates to fixed,
- an increase in the LIBOR rate which affects the Company's variable rate
debt, and
- reduction of interest capitalized on major renovations and construction
from $3.2 million for the six months ended June 30, 1999 to approximately
$497,000 in 2000.
Land leases as a percent of total revenue, after adding back deferred rent,
increased from 3.2% to 4.1% for the six months ended June 30, 1999 and 2000,
respectively. The increase in land lease expense is primarily attributed to a
reserve established in June 2000, for prior year disputed land lease expense and
current year land lease expense for two hotels. The land lease
42
<PAGE> 47
rent for these hotels is computed as a percentage of hotel revenues and these
two hotels had larger than average percentage increases in revenue for the
period.
Comparison of the Years Ended December 31, 1999 and 1998.
For the years 1999 and 1998, the Company had total revenue of $504.0
million and $339.6 million, respectively, consisting primarily of Percentage
Lease revenue of $490.9 million and $328.0 million. The increase in revenue is
primarily attributable to the Company's acquisition and subsequent leasing,
pursuant to Percentage Leases, of interests in more than 100 hotels in 1998,
including the hotels that were acquired through the merger on July 28, 1998. The
hotels which were acquired during 1998, including those acquired through the
merger, accounted for $151.1 million (93%) of the change in Percentage Lease
revenue for the twelve months ended December 31, 1999 compared to 1998. The 73
hotels owned throughout both of the years ended December 31, 1999 and 1998
produced an increase in Percentage Lease revenues of $10.9 million (or 1.9%)
between 1998 and 1999.
Changes in room and suite revenues significantly affect the Company because
its principal source of revenue is rent payments from the Lessees under the
Percentage Leases. The Percentage Leases provide for rent based on a percentage
of room and suite revenue, food and beverage revenue, food and beverage rents,
and in some instances, other hotel revenues. In 1999 and 1998, Percentage Lease
revenue derived from room and suite revenue represented 91% and 93% of total
Percentage Lease revenue, respectively. The 73 hotels owned throughout both 1999
and 1998 increased room and suite revenue by $11.6 million (or 2%) in 1999
compared to 1998 and increased RevPAR by 1.4%. The RevPAR increase was driven by
an increase in average daily rate ("ADR") of 1.5%, despite a slight drop in
occupied rooms ("Occupancy") of 0.1 percentage points. Of the 73 hotels, 18 had
undergone renovation in either 1998 or 1999. Those renovated hotels reflected
increases in ADR of 2.2% and in RevPAR of 1.9%, which was greater than the
results for hotels that had not undergone renovation. This reflects both the
improvement from renovation and the impact of taking rooms out of service for
such renovation.
The Company generally seeks to improve those of its hotels that management
believes can achieve increases in room and suite revenue and RevPAR as a result
of renovation, redevelopment and rebranding. However, during the course of such
improvements hotel revenue performance is often adversely affected, compared to
the prior year, by such temporary factors as rooms and suites out of service and
disruptions of hotel operations. During 1999, the Company spent $177 million on
the renovation, redevelopment and rebranding of its hotels. As a result of the
extensive renovations, the Company's portfolio experienced significant
disruption during 1999, with approximately 350,000 room nights out of service,
or 2% of its portfolio. (A more detailed discussion of hotel room and suite
revenue is contained in the "The Hotels -- Actual" section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Total expenses increased $151.7 million in the year ended December 31,
1999, to $367.3 million from $215.7 million in 1998. This increase resulted
primarily from the additional hotels acquired in July 1998 through the merger.
Total expenses as a percentage of total revenue increased to 72.9% for the
twelve months ended December 31, 1999, compared to 63.4% in the same period of
1998. The major components of the increase in expenses, as a percentage of total
revenue, are depreciation, land leases, and interest expense.
Depreciation increased as a percentage of total revenue to 30.4% in the
twelve months ended December 31, 1999, from 26.8% in 1998. The relative increase
in depreciation expense is primarily attributed to depreciation on $341.4
million in capital expenditures made over the
43
<PAGE> 48
past two years, approximately 40% of which are short-lived assets that are
depreciated over 3 to 5 years.
Land lease expenses represent 3.5% of total revenue in 1999 as compared to
2.4% in 1998. This increase, as a percentage of total revenue, results primarily
from the larger percentage of hotels subject to land leases among those acquired
through the merger.
Interest expense increased, as a percentage of total revenue, to 24.9% in
the twelve months ended December 31, 1999, from 21.6% in 1998. This increase in
interest expense is attributed to the increased debt used to finance
renovations, higher interest rates on debt that was refinanced to extend
maturities and convert such debt from variable to fixed rates, the assumption of
debt related to the more highly leveraged Bristol assets, and borrowings to fund
the Company's stock repurchase program.
General and administrative expenses and taxes, insurance and other expense
remained relatively constant as a percentage of total revenue in 1999 and 1998.
Comparison of the Years Ended December 31, 1998 and 1997.
For the years 1998 and 1997, the Company had revenue of $339.6 million and
$176.7 million, respectively, consisting primarily of Percentage Lease revenue
of $328.0 million and $169.1 million. The 43 hotels owned by the Company
throughout both of the years 1998 and 1997, which reflect the effect of the
Company's ownership and the management by its strategic partners, experienced a
growth in RevPAR during 1998 of 5.4% over 1997. The largest portion of this
increase came from the 18 former Crown Sterling Suite hotels, which continued
their trend of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in
1998 compared to $85.04 for 1997, an increase of 8.2%. These hotels have
improved their RevPAR performance by 31.4% since 1996. The Company attributes
this dramatic increase to the renovation, redevelopment and rebranding of these
hotels in 1996 and early 1997.
The improvement in room and suite revenue significantly impacts the Company
because its principal source of revenue is rent payments from the Lessees under
the Percentage Leases. The Percentage Leases provide for rent based on a
percentage of room and suite revenue, food and beverage revenue, food and
beverage rents, and in some instances, other hotel revenues. The portion of the
Percentage Lease revenue derived from room and suite revenues was approximately
93% in 1998 and 97% in 1997. The decrease in the portion of Percentage Lease
revenue derived from room and suite revenues is attributed primarily to the more
extensive food and beverage operations in the Bristol hotels.
Total expenses increased $108.7 million in 1998 over 1997, primarily
resulting from the net acquisition of 120 hotels during 1998 and 30 hotels in
1997. Total expenses as a percentage of total revenue increased in 1998 to 63.4%
from 60.6% in 1997.
The major component of the increase in expenses, as a percentage of total
revenue, was interest expense. Interest expense increased by $44.4 million, from
$28.8 million in 1997 to $73.2 million in 1998, and increased as a percentage of
total revenue, from 16.3% in 1997 to 21.6% in 1998. The relative increase in
interest expense is attributed to the assumption of debt related to the more
highly leveraged Bristol assets. Debt as a percentage of total assets increased
from 28.5% at December 31, 1997 to 38.2% at December 31, 1998.
General and administrative expenses, depreciation, and taxes, insurance and
other expenses remained relatively constant as a percentage of total revenue in
1998 and 1997.
Funds From Operations and EBITDA
The Company considers Funds From Operations ("FFO") and earnings before
interest, taxes, depreciation and amortization ("EBITDA") to be key measures of
a REIT's performance
44
<PAGE> 49
and should be considered along with, but not as an alternative to, net income
and cash flow as a measure of the Company's operating performance and liquidity.
The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") defines
FFO as net income or loss (computed in accordance with GAAP), excluding gains or
losses from debt restructuring and sales of properties, plus real estate related
depreciation and amortization, after comparable adjustments for the Company's
portion of these items related to unconsolidated entities and joint ventures.
The Company believes that FFO and EBITDA are helpful to investors as a measure
of the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, they
provide investors with an indication of the ability of the Company to incur and
service debt, to make capital expenditures, to pay dividends and to fund other
cash needs. The Company computes FFO in accordance with standards established by
NAREIT, except that the Company adds back rent deferred under SAB 101 to derive
FFO. This may not be comparable to FFO reported by other REITs that do not
define the term in accordance with the current NAREIT definition, that interpret
the current NAREIT definition differently than the Company or that do not adjust
FFO for rent deferred under SAB 101. FFO and EBITDA do not represent cash
generated from operating activities as determined by GAAP, and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor does it necessarily reflect the funds available to fund
the Company's cash needs, including its ability to make cash distributions. FFO
and EBITDA may include funds that may not be available for management's
discretionary use due to functional requirements to conserve funds for capital
expenditures and property acquisitions, and other commitments and uncertainties.
The following table details the computation of FFO (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
FFO: 1997 1998 1999 1999 2000
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss)............. $ 69,467 $121,339 $135,776 $ 80,408 $(12,372)
Deferred rent............... 18,604
Reserve for assets held for
sale..................... 63,000
Series B preferred unit
distributions............ (8,373) (12,937) (6,468) (6,468)
Extraordinary charge from
write off of deferred
financing fees........... 185 3,075 1,113 1,113
Depreciation................ 50,798 90,835 152,948 74,162 81,480
Depreciation for
unconsolidated
entities................. 9,365 10,487 9,995 5,017 5,136
-------- -------- -------- -------- --------
FFO........................... $129,815 $217,363 $286,895 $154,232 $149,380
======== ======== ======== ======== ========
Weighted average units
outstanding................. 39,157 58,013 75,251 76,008 67,987
</TABLE>
------------
(1) Weighted average units outstanding are computed including dilutive options,
unvested stock grants, and assuming conversion of Series A Preferred Units
to Units.
45
<PAGE> 50
The following table details the computation of EBITDA (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
EBITDA: 1997 1998 1999 1999 2000
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Funds from Operations......... $129,815 $217,363 $286,895 $154,232 $149,380
Interest expense............ 28,792 73,182 125,435 59,172 77,644
Interest expense of
unconsolidated
subsidiaries............. 5,895 6,521 6,729 3,343 4,787
Amortization of unearned
compensation............. 1,111 922 693 375 474
Series B preferred
distributions............ 8,373 12,937 6,468 6,468
-------- -------- -------- -------- --------
EBITDA........................ $165,613 $306,361 $432,689 $223,590 $238,753
======== ======== ======== ======== ========
</TABLE>
The Hotels -- Actual
Upscale and full service hotels like Embassy Suites, Crowne Plaza, Holiday
Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and Sheraton
and Sheraton Suites hotels account for approximately 97% of the Company's
Percentage Lease revenue. As a result of the renovation and rebranding of
hotels, approximately 98% of Percentage Lease revenue for 2000 is expected to be
derived from upscale and full service hotels.
The Company believes that when analyzing the performance of the hotels,
looking at "Comparable Hotels" is the most meaningful. The Company defines
"Comparable Hotels" as those not undergoing renovation, redevelopment or
rebranding in either of the comparison periods. Major renovations generally have
an adverse affect on hotel earnings by taking rooms out of service and
disrupting hotel operations. "Non-comparable Hotels" are those undergoing
renovation, redevelopment or rebranding during either period.
Comparison of The Hotels' Operating Statistics for the Six Months Ended June
30, 2000 and 1999
The following table sets forth historical Occupancy, ADR and RevPAR and the
percentage changes therein between the periods presented for the hotels in which
the Company had an ownership interest at June 30, 2000. This information is
presented regardless of the date of acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------
OCCUPANCY ADR REVPAR
---------- -------- -------
<S> <C> <C> <C>
DJONT Comparable Hotels............................ 75.4% $126.27 $95.07
Bristol Comparable Hotels.......................... 72.3 91.48 66.14
Total Comparable Hotels(A)....................... 73.8 109.00 80.49
Non-comparable Hotels(B)........................... 71.6 101.04 72.32
Total Hotels excluding hotels held for sale...... 73.2 106.92 78.30
Hotels held for sale(C)............................ 60.1 72.02 43.28
Total Hotels..................................... 72.1% $104.52 $75.41
</TABLE>
46
<PAGE> 51
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------
OCCUPANCY ADR REVPAR
---------- -------- -------
<S> <C> <C> <C>
DJONT Comparable Hotels............................ 73.2% $123.07 $90.04
Bristol Comparable Hotels.......................... 70.0 89.81 62.84
Total Comparable Hotels.......................... 71.5 106.68 76.33
Non-comparable Hotels.............................. 62.1 99.18 61.54
Total Hotels excluding hotels held for sale...... 69.0 104.88 72.39
Hotels held for sale............................... 60.5 72.38 43.76
Total Hotels..................................... 68.3% $102.50 $70.02
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM PRIOR PERIOD
2000 VS. 1999 YEAR TO DATE
----------------------------
OCCUPANCY ADR REVPAR
---------- ----- -------
<S> <C> <C> <C>
DJONT Comparable Hotels............................ 2.2 pts 2.4% 5.6%
Bristol Comparable Hotels.......................... 2.3 pts 1.9 5.3
Total Comparable Hotels.......................... 2.3 pts 2.2 5.5
Non-comparable Hotels.............................. 9.5 pts 1.9 17.5
Total Hotels excluding hotels held for sale...... 4.2 pts 1.9 8.2
Hotels held for sale............................... (0.4) pts (0.5) (1.1)
Total Hotels..................................... 3.8 pts 2.0% 7.7%
</TABLE>
------------
(A) DJONT Comparable Hotels include 65 hotels and Bristol Comparable Hotels
include 56 hotels which were not undergoing renovation, redevelopment, or
rebranding in either the 2000 or 1999 periods reported, and exclude hotels
held for sale.
(B) Non-comparable Hotels include 42 hotels undergoing redevelopment in either
the 2000 or 1999 periods reported, and exclude hotels held for sale.
(C) Hotels held for sale includes three DJONT leased hotels and 22 Bristol
leased hotels, consisting of two Courtyard by Marriott hotels, five
Fairfield Inn hotels, six Hampton Inn hotels, eight Holiday-branded hotels,
three Doubletree Guest Suites hotels, and one Four Points by Sheraton.
For the six months ended June 30, 2000, the Company's Comparable Hotels'
RevPAR, excluding hotels held for sale, increased compared to the same period in
1999, by 5.5%. For the same period the Comparable Hotels' ADR and Occupancy
increased 2.2% and 2.3 percentage points, respectively. A large portion of the
increase in year-to-date 2000 RevPAR came from the second quarter 2000 hotel
performance. For the second quarter, the Company's Comparable Hotels' RevPAR,
excluding hotels held for sale, increased 8.2%. The ADR and Occupancy for these
hotels increased 3.4% and 3.4 percentage points, respectively. The total hotel
portfolio RevPAR, excluding hotels held for sale, increased 9.9%. This
represents the fourth consecutive quarter that the Company's hotels reported
increases in both ADR and Occupancy.
47
<PAGE> 52
The DJONT Comparable Hotels are predominately Embassy Suites, Doubletree
and Doubletree Guest Suites, and Sheraton hotels. The Bristol Comparable Hotels
are predominately Holiday Inn and Crowne Plaza hotels. The following table shows
the Comparable Hotel RevPAR changes (excluding hotels held for sale) for the six
months ended June 30, 2000, compared to 1999:
<TABLE>
<CAPTION>
REVPAR PERCENTAGE OF TOTAL
CHANGE ROOM REVENUE
------ -------------------
<S> <C> <C>
Embassy Suites (50 hotels).............................. 6.5% 46.8%
Holiday-branded (33 hotels)............................. 7.5 25.2
Crowne Plaza (13 hotels)................................ 6.2 11.9
Doubletree-branded (8 hotels)........................... 1.7 5.2
Sheraton (4 hotels)..................................... 1.4 4.1
Other (13 hotels)....................................... (3.8) 6.8
All Comparable Hotels (121 hotels)...................... 5.5% 100.0%
</TABLE>
The Company attributes much of the improvement in RevPAR to the renovation,
rebranding and repositioning program in which the Company has spent
approximately $465 million in 1998, 1999 and the first six months of 2000. The
Company's Hotels outperformed most other hotels in their respective markets
during the second quarter and the Company expects this strong performance to
continue.
The Company's Embassy Suites hotels experienced an increase in occupancy
with 50 Comparable Embassy Suites hotels achieving a 6.5% RevPAR improvement for
the six months compared to the prior year. These hotels, which constitute nearly
47% of Comparable Hotel room revenues, increased ADR by 3.2% and Occupancy by
2.3 percentage points over the same six month period in 1999. The Company's
Comparable Doubletree hotels had a 1.7% RevPAR gain for the six months. The
Company believes, in addition to the renovation program, the recent
Hilton/Promus merger and the addition of the Hilton HHonors(R) program has had
and will continue to have a positive impact on its Embassy Suite and Doubletree
portfolios.
Bass completed its merger with Bristol Hotels & Resorts at the end of the
first quarter of 2000. The Company expects the integration of the Bristol
management team with Bass will continue to be beneficial to the development and
strengthening of the Crowne Plaza and Holiday brands.
The Company's 13 Comparable Crowne Plaza hotels (all of which were
renovated and rebranded from Holiday Inn and Harvey hotels), reported increased
RevPAR of 6.2% for the six months ended June 30, 2000 compared to the same
period in 1999. This increase resulted from an increase of 5.8 percentage points
in occupancy, which brought the average occupancy for these hotels up to 74.0%
for the six months. In addition to the recent renovations, the Company
attributes a portion of this improvement to the change in marketing for the
brand, which now supports the marketing of Crowne Plaza with the
Inter-Continental(R)brand.
The Company's Holiday Inn and Holiday Inn Select hotels continue to
outperform their competition. The Company's Holiday-branded hotels increased
RevPAR for the six months by 7.5%. The six month increase in RevPAR resulted
from a 2.4 percentage point increase in Occupancy and a 3.9% increase in ADR.
The Company's 19 Comparable Holiday-branded hotels with greater than 250 rooms
(representing 82% of the Company's Holiday-branded revenue) reported an increase
in RevPAR of 7.9% for the six months, which came from Occupancy and ADR
increases of 2.3 percentage points and 4.7%, respectively.
48
<PAGE> 53
Nearly 60% of the Company's Comparable Hotel room revenues in the six
months were derived from four states: Texas, California, Florida and Georgia.
Changes in Comparable Hotel RevPAR during the six months for these states,
excluding hotels held for sale, compared to the same period in 1999, are
illustrated in the following table:
<TABLE>
<CAPTION>
REVPAR PERCENTAGE OF TOTAL
CHANGE ROOM REVENUE
------ -------------------
<S> <C> <C>
Texas (30 hotels)....................................... 2.8% 19.2%
California (17 hotels).................................. 13.0 21.3
Florida (12 hotels)..................................... 2.4 12.3
Georgia (9 hotels)...................................... 3.0 6.6
</TABLE>
The Comparable Hotels in Texas, which account for approximately 19.2% of
FelCor's Comparable Hotel total room revenue, experienced the second consecutive
quarter with positive RevPAR growth compared to prior year. The growth in supply
from new hotels in most major markets in Texas appears to have slowed and
management believes that their recently renovated hotels will continue to
effectively compete in their market segments. The Company's 15 comparable hotels
located in Dallas, which had been adversely affected by new competition in
recent quarters, had RevPAR increases of 3.7% year-to-date.
The Company's Non-comparable Hotels (42 hotels) reported an increase in
RevPAR of 17.5% year-to-date. These hotels were profoundly affected by the
Allerton Crowne Plaza (increased RevPAR by 391% for the first six months of
2000), which was closed for renovation in the third quarter 1998 and partially
reopened in the second quarter of 1999. The Non-comparable Hotels, excluding the
Allerton, reported increased RevPAR of 12.1% year-to-date.
Comparison of the Hotels' Operating Statistics for the Years Ended December
31, 1999 and 1998.
The following tables set forth historical Occupancy, ADR and RevPAR at
December 31, 1999 and 1998, and the percentage changes therein between the years
presented for the hotels in which the Company had an ownership interest at
December 31, 1999. This information is presented regardless of the date of
acquisition.
<TABLE>
<CAPTION>
1999
----------------------------
OCCUPANCY ADR REVPAR
--------- ------- ------
<S> <C> <C> <C>
DJONT Comparable Hotels............................ 73.0% $123.00 $89.79
Bristol Comparable Hotels.......................... 65.7 81.55 53.59
Total Comparable Hotels(A)....................... 69.6 104.61 72.79
DJONT Non-Comparable Hotels........................ 67.9 108.58 73.74
Bristol Non-Comparable Hotels...................... 66.4 89.84 59.64
Total Non-Comparable Hotels(B)................... 66.9 96.64 64.68
Total Hotels..................................... 68.3% $100.72 $68.77
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------
OCCUPANCY ADR REVPAR
--------- ------- ------
<S> <C> <C> <C>
DJONT Comparable Hotel............................. 73.0% $121.42 $88.67
Bristol Comparable Hotels.......................... 67.3 80.00 53.86
Total Comparable Hotels.......................... 70.3 102.74 72.27
DJONT Non-comparable Hotels........................ 69.7 106.08 73.96
Bristol Non-comparable Hotels...................... 65.9 83.67 55.14
Total Non-comparable Hotels...................... 67.3 92.02 61.90
Total Hotels..................................... 68.8% $ 97.56 $67.16
</TABLE>
49
<PAGE> 54
<TABLE>
<CAPTION>
CHANGE FROM PRIOR PERIOD
1999 VS. 1998
------------------------
OCCUPANCY ADR REVPAR
--------- --- ------
<S> <C> <C> <C>
DJONT Comparable Hotels................................. 0.0 pts 1.3% 1.3%
Bristol Comparable Hotels............................... (1.6) pts 1.9 (0.5)
Total Comparable Hotels............................... (0.7) pts 1.8 0.7
DJONT Non-comparable Hotels............................. (1.8) pts 2.4 (0.3)
Bristol Non-comparable Hotels........................... 0.5 pts 7.4 8.2
Total Non-comparable Hotels........................... (0.3) pts 5.0 4.5
Total Hotels.......................................... (0.5) pts 3.2% 2.4%
</TABLE>
------------
(A) DJONT Comparable Hotels includes 55 hotels and Bristol Comparable Hotels
includes 49 hotels which were not undergoing renovation, redevelopment, or
rebranding in either the 1999 or 1998 periods reported.
(B) DJONT Non-comparable Hotels includes 32 hotels and Bristol Non-comparable
Hotels includes 52 hotels undergoing redevelopment in either the 1999 or
1998 periods reported.
For the twelve months ended December 31, 1999, the Company's Comparable
Hotels' RevPAR increased, compared to the same period in 1998, by 0.7%. In the
twelve months ended December 31, 1999, the Comparable Hotels' ADR increased
1.8%, but Occupancy fell 0.7 percentage points. In general, the Company is
encouraged by the relative firming of room rates in the last half of the year,
which appears to be indicative of the absorption of the new rooms introduced in
certain markets during the past year.
The DJONT Comparable Hotels are predominately Embassy Suites, Doubletree
and Doubletree Guest Suites, and Sheraton hotels. The Bristol Comparable Hotels
are predominately Holiday Inn and Crowne Plaza hotels. The following table shows
the Comparable Hotel RevPAR changes for these five brands for the year ended
December 31, 1999, compared to 1998:
<TABLE>
<CAPTION>
REVPAR PERCENTAGE OF TOTAL
CHANGE ROOM REVENUE
------ -------------------
<S> <C> <C>
Embassy Suites (45 hotels).............................. 1.3% 56.9%
Holiday Inn (29 hotels)................................. 1.4 22.5
Sheraton (3 hotels)..................................... 1.4 4.4
Doubletree (5 hotels)................................... 2.5 2.9
Crowne Plaza (2 hotels)................................. (8.9) 2.0
</TABLE>
The poor performance of the Comparable Crowne Plaza hotels is primarily the
result of one hotel in Jackson, Mississippi, which was converted to a Crowne
Plaza in 1997. This hotel suffered both significant competition from a new full
service hotel and the relocation of a major employer that had contributed
significant business in prior years. The Comparable Embassy Suites and Holiday
Inn hotels showed improving RevPAR trends in the last half of 1999, which appear
to be continuing into 2000.
Nearly 52% of the Company's 1999 Comparable Hotel revenue was derived from
four states: Texas, California, Georgia and Florida. Changes in Comparable Hotel
RevPAR during 1999 for these states, compared to 1998, are illustrated in the
following table:
<TABLE>
<CAPTION>
REVPAR PERCENTAGE OF TOTAL
CHANGE ROOM REVENUE
------ -------------------
<S> <C> <C>
Texas (25 hotels)...................................... (3.9)% 24.0%
California (12 hotels)................................. 3.3 11.5
Georgia (10 hotels).................................... 1.0 9.6
Florida (7 hotels)..................................... 4.6 6.7
</TABLE>
The Company's exposure in overbuilt markets, such as Dallas, Texas, had a
negative impact on Comparable Hotel trends during 1999, although management
expects the rate of new supply
50
<PAGE> 55
additions to decline in 2000. During 1999, the Company's Texas hotels,
experienced a 3.9% decrease in RevPAR, while the 10 Comparable Hotels in the
Dallas market experienced a 5.9% decline in RevPAR. Management is encouraged,
although it continues to see an oversupply in the Dallas market, that the
situation appears to be improving and supply growth is now expected to begin a
gradual decline. In addition, the Company has recently renovated eight of its 18
Dallas-based properties and management is currently projecting positive RevPAR
growth for the majority of its hotels in this market during 2000.
The Non-comparable Hotel performance was most profoundly affected by the
Allerton Crowne Plaza, which was closed for renovation in the third quarter of
1998 and partially reopened in the second quarter of 1999. The Allerton
generated an 84.3% increase in its RevPAR for the year ended December 31, 1999,
as compared to the same period in 1998. The remainder of the Bristol
Non-comparable Hotels also showed improvements in RevPAR, which are attributed
to the completion of renovations at many of these hotels. Most of the DJONT
Non-comparable Hotels where renovations had been completed also showed strong
RevPAR increases for the year, compared to the same period last year.
Other factors which management believes will have favorable impacts on
future hotel revenues are the recent merger between Hilton Hotels Corporation
and Promus Hotel Corporation and the recently completed merger between Bristol
and Bass plc.
The Hilton/Promus merger, which was completed in November 1999, should
provide stability and focus for the Embassy Suites and Doubletree brands. In
addition, the Promus brands should benefit from the distribution of the Hilton
brands in the United States and worldwide, cross-selling through the larger
Hilton/Promus reservation system and the addition of Hilton's Honors frequent
traveler and loyalty program to the Company's Embassy Suites and Doubletree
hotels.
The Bass/Bristol merger, which was completed March 31, 2000, will serve to
match the management of the Company's Bass branded hotels with the brand owner,
which management expects to be beneficial to the development and strengthening
of these brands and should help strengthen the Company's relationship with the
brand owner.
DJONT - Actual
Comparison of the Six Months Ended June 30, 2000 and 1999
Total revenues increased to $448.7 million in the first six months of 2000,
from $409.6 million in the first six months of 1999, an increase of 9.5% Total
revenues consisted primarily of room and suite revenue of $364.7 million and
$334.8 million in the first six months of 2000 and 1999, respectively.
The increase in room and suite revenue resulted from a 2.7 percentage point
increase in Occupancy combined with a 2.3% increase in ADR and the addition of
one hotel to the DJONT portfolio in January of 2000, which contributed $14.4
million in room and suite revenue.
DJONT's total expenses decreased as a percentage of total revenues from
101.5% in the six months ended June 30, 1999, to 100.0% in the six months ended
June 30, 2000. This is largely due to reductions of Percent Rent as a percentage
of total revenue from 41.4% to 39.7%.
Net income for DJONT for the six months ended June 30, 2000, was $104,000
compared to a loss of $6.3 million in the same period in 1999.
Comparison of the Years Ended December 31, 1999 and 1998
Total revenues increased to $797.6 million in the twelve months ended
December 31, 1999, from $749.5 million in the same period of 1998, an increase
of 6.4%. Total revenues
51
<PAGE> 56
consisted primarily of room and suite revenue of $649.3 million and $618.1
million in the twelve months of 1999 and 1998, respectively.
The increase in total revenues is primarily a result of the acquisition of
twelve additional hotels in 1998. Room and suite revenues from the these twelve
hotels, for the twelve months ended December 31, 1999 over 1998, increased 1.9%
or $10.6 million. The room and suite revenue for 73 hotels which were leased for
all of 1999 and 1998 increased $11.6 million as a result of an increase in ADR
of $1.81, with a slight decrease, Occupancy of 0.1%.
The Embassy Suites and Doubletree branded hotels, collectively 74 hotels,
should benefit from the recently completed merger between Hilton Hotel
Corporation and Promus Hotel corporation (the brand manager for all but two of
DJONT's Embassy Suites and Doubletree hotels). Hilton's upscale hotel experience
and integration into Hilton's central reservation system, marketing
infrastructure and frequent stay program has the potential to increase both
incremental occupancy and rate.
DJONT's income before Percentage Lease rent decreased as a percentage of
total revenues from 38.8% in the twelve months ended December 31, 1998 to 37.9%
in the twelve months ended December 31, 1999. For the twelve months ended
December 31, 1999, DJONT incurred losses of $4.9 million. This is largely due to
increased property operating costs resulting from higher labor costs and related
payroll benefits, increased reservation costs, and increased fees related to the
former Crowne Sterling hotels.
Percentage lease expense remained relatively constant as a percentage of
total revenue in 1999 and 1998.
Comparison of the Years Ended December 31, 1998 and 1997
Total revenues increased to $749.5 million in 1998 from $534.5 million in
1997, an increase of 40.2%. Total revenues consisted primarily of suite revenue
of $618.1 million and $456.6 million in 1998 and 1997, respectively.
The increase in total revenues is primarily a result of the increase in the
number of hotels leased to 86 hotels at December 31, 1998, from 73 hotels at
December 31, 1997. Suite revenues for the 43 hotels which were leased for all of
1998 and 1997 increased 8.0% or $19.3 million. The increase in revenues at these
hotels is due primarily to improved average daily room rates of $122.33, for the
year ended December 31, 1998, as compared to $114.77 for the year ended December
31, 1997.
DJONT recorded a net income of $844,000 in 1998 compared to a net loss of
$2.7 million in 1997. This improvement in operating performance is primarily
attributed to improved profitability of food and beverage operations for DJONT
and a decrease in percentage lease expenses as a percentage of total revenue.
Food and beverage profits increased to 1.6% of total revenue in 1998 from
0.3% in 1997, an increase of $10.2 million. This change is attributed to the
increased number of hotels leased by DJONT which have a greater emphasis on food
and beverage than the traditional Embassy Suites. Food and beverage revenue, as
a percentage of total revenue, increased to 10.4% in 1998 compared to 6.5% in
1997.
Percentage lease expenses as a percentage of total revenue decreased to 39%
from 41%. A portion of this change is attributed to the increase in food and
beverage revenues, as a percentage of total revenues, which bear a lower
percentage rent than room revenues.
52
<PAGE> 57
Renovations, Redevelopments and Rebrandings
The Company has historically differentiated itself from many of its
competitors by:
- the practice of upgrading, renovating and/or redeveloping most of its
acquired hotels to enhance their competitive position, and, in certain
instances, rebranding them to improve their revenue generating capacity;
and
- the ongoing program for the maintenance of the Company's upgraded hotel
assets, which includes:
- the contribution of at least 4% of annual room and suite revenue for the
DJONT hotels, and 3% of total annual hotel revenue for the Bristol
hotels, for routine capital replacements and improvements; and
- ensuring the Lessees' adherence to a maintenance and repair program
amounting to approximately 4.5% of annual hotel revenues.
Renovation and Redevelopment Program
The Company has demonstrated its ability to successfully execute
renovations. Its renovation and rebranding of the 18 Crown Sterling Suites
hotels, which were acquired during 1996 and 1997, achieved an overall RevPAR
increase of 34.1% between 1996 and 1999. During 1998 and 1999, an aggregate of
approximately $442 million in capital improvements and other capital
expenditures were made to the Company's hotels, with approximately 3% of total
hotel room nights being lost due to renovation in 1998 and 2% in 1999. During
2000, the Company currently expects to spend approximately $15 million on the
renovation of 28 hotels, approximately $42 million to complete renovations
started in 1999 at 28 hotels, and approximately $40 million for other capital
expenditures. The Company is currently reviewing the feasibility of undertaking
between $4 and $10 million of additional renovations during 2000. The Company
currently expects an insignificant number of room nights to be lost during 2000
as a result of renovations. By the end of 2000, the Company will have spent more
than $900 million since 1994 on renovations and other capital expenditures to
its hotel portfolio, which should limit the need for future renovation
expenditures primarily to those necessary to maintain the hotels in their
upgraded condition.
The largest single renovation project completed during 1999 was the
Allerton Crowne Plaza in Chicago, which was partially reopened in July 1999,
after having been closed for more than a year. This project has received
numerous awards, including Lodging Hospitality magazine's Year's Best Design
competition in two categories, Bass Hotels & Resorts 1999 Newcomer of the Year
award, and Chicago's Greater North Michigan Avenue Association 1999 Avenue
Enhancement award.
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<PAGE> 58
Rebranding
In 1998, 1999, and through the first six months of 2000, the Company
re-branded 26 hotels as follows:
<TABLE>
<CAPTION>
NEW BRAND PRIOR BRAND LOCATION
--------- ----------- --------
<S> <C> <C>
Crowne Plaza.................. Holiday Inn Hartford, Connecticut
Crowne Plaza.................. Holiday Inn San Francisco, California
Crowne Plaza.................. Hilton Secaucus, New Jersey
Crowne Plaza.................. Holiday Inn Houston, Texas
Crowne Plaza.................. Holiday Inn Select Greenville, South Carolina
Crowne Plaza.................. Holiday Inn Select Miami, Florida
Crowne Plaza.................. Holiday Inn Select Philadelphia, Pennsylvania
Crowne Plaza.................. Harvey Hotel Atlanta, Georgia
Crowne Plaza.................. Harvey Hotel Dallas, Texas
Crowne Plaza.................. Harvey Hotel Addison, Texas
Crowne Plaza.................. Holiday Inn Select Irvine, California
Crowne Plaza.................. Holiday Inn San Jose, California
Crowne Plaza.................. Independent Chicago, Illinois
Crowne Plaza.................. Holiday Inn Omaha, Nebraska
Crowne Plaza Suites........... Bristol Suites Dallas, Texas
Doubletree.................... Radisson Wilmington, Delaware
Embassy Suites................ Doubletree Guest Suites BWI, Maryland
Embassy Suites................ Doubletree Guest Suites Troy, Michigan
Embassy Suites................ Doubletree Guest Suites Bloomington, Minnesota
Embassy Suites................ Doubletree Guest Suites Dallas, Texas
Holiday Inn & Suites.......... Harvey Suites Houston, Texas
Independent................... Embassy Suites Beaver Creek, Colorado
Sheraton...................... Radisson Dallas, Texas
Sheraton Suites............... Doubletree Guest Suites Lexington, Kentucky
Sheraton Suites............... Doubletree Guest Suites Ft. Lauderdale, Florida
Westin........................ Sheraton Dallas, Texas
</TABLE>
Room Additions
During 1998, the Company completed construction of an aggregate of 224
suites at its Embassy Suites hotels in Jacksonville (67) and Orlando (North)
(67), Florida, and New Orleans (90), Louisiana. In 2000, the Company completed
construction on a 90 room addition to its Doubletree hotel in Wilmington,
Delaware and started construction on a 90 room addition to its Holiday
Inn -- French Quarter hotel in New Orleans, Louisiana, with an estimated cost of
$10 million.
Capital Reserve
It is the Company's policy to contribute a minimum of 4% of room and suite
revenue from the DJONT leased hotels and 3% of total hotel revenue from the
Bristol leased hotels to a capital reserve account in order to provide funds for
necessary ongoing capital replacements and improvements. During 1999,
approximately $49.3 million was spent on such replacements and improvements
(which is in addition to the $161 million spent under the Renovation and
Redevelopment Program described above). During 2000, the Company expects to
spend approximately $40 million on replacements and improvements, of which
approximately $20.3 million had been spent through June 30, 2000.
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<PAGE> 59
Repairs and Maintenance
During the year ended December 31, 1999, approximately $38.5 million and
$32.7 million were spent by the Lessees on routine repairs and maintenance at
the Hotels leased by DJONT and Bristol, respectively. This represents
approximately 4.6% of total hotel revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to unitholders and repayments of indebtedness, is its
share of the cash flow from the Percentage Leases. For the six months ended June
30, 2000, net cash flow provided by operating activities, consisting primarily
of Percentage Lease revenue, was $138.7 million and Funds From Operations was
$149.4 million.
The Lessees' obligations under the Percentage Leases are largely unsecured.
The Lessees have limited capital resources, and, accordingly, their ability to
make lease payments under the Percentage Leases is substantially dependent on
the ability of the Lessees to generate sufficient cash flow from the operation
of the hotels.
DJONT recorded net income of $104,000 for the six months ended June 30,
2000, but had a cumulative shareholders' deficit of $13.0 million, largely as a
result of losses in prior years. Consistent with the operating results for the
six months ended June 30, 2000, management anticipates revenue growth at the
DJONT hotels during 2000, but DJONT may record a small operating loss for the
year 2000.
On July 21, 2000, FelCor's Independent Directors approved the acquisition
of 100% of DJONT Operations, LLC and its subsidiaries effective January 1, 2001
(the effective date for the recently passed REIT Modernization Act). The
purchase price is expected to be approximately 417,000 FelCor LP units (valued
at $9.3 million based upon the $22.375 closing share price on August 31, 2000).
No binding agreements have been entered into for this acquisition. The Company
expects the benefits to it from the purchase of DJONT, if completed, will
include: (i) a more direct relationship with the hotel and brand managers, (ii)
elimination of potential conflicts of interest and (iii) consolidated hotel
level financial reporting. There can be no assurance that the Company will
successfully complete this transaction.
Bristol had entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases, and is required
to maintain a minimum liquid net worth. At June 30, 2000, a portion of this
liquid net worth was being satisfied through a letter of credit for the benefit
of the Company, in the amount of $9.1 million. On July 27, 2000, the letter of
credit was replaced with an absolute and unconditional guarantee not to exceed
$20 million, by a wholly owned subsidiary of Bass.
The Company currently is negotiating to acquire the Bristol Percentage
Leases from Bass by January 1, 2001, but at this date has not entered into any
agreements to acquire the Bristol Lessees or their leasehold interests. There
can be no assurance that the Company will successfully complete this
transaction.
The Company has identified 25 non-strategic hotels which it intends to
sell. The Company expects gross sale proceeds from these hotels to be
approximately $150 million and net proceeds to be approximately $136 million
(after deducting estimated transaction costs). The Company anticipates that the
sale of these 25 hotels will result in a book loss of approximately $63 million.
Accordingly, FelCor's Board of Directors approved the establishment of a $63
million reserve for hotels held for sale, to reflect the difference between book
value and the estimated market value of these hotels.
In January 2000, FelCor's Board of Directors authorized an increase in its
share repurchase program to an aggregate of $300 million. The stock repurchases
may, at the discretion of
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<PAGE> 60
FelCor's management, be made from time to time at prevailing prices in the open
market or through privately negotiated transactions. FelCor expects to fund the
repurchase of stock through redemption of FelCor LP's units, which will be
funded from existing credit facilities and proceeds from the sale of assets.
From January 2000 through June 30, 2000, FelCor repurchased approximately 3.1
million shares of its outstanding common stock on the open market for
approximately $56.7 million and FelCor LP has redeemed a like number of units.
The Company may incur indebtedness to make property acquisitions, to
purchase shares of its capital stock, or to meet distribution requirements
imposed on a REIT under the Internal Revenue Code, to the extent that working
capital and cash flow from the Company's investments and asset sales are
insufficient for such purposes.
Debt at June 30, 2000, and December 31, 1999, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
COLLATERAL INTEREST RATE MATURITY DATE 2000 1999
---------------- ------------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Floating Rate Debt:
Line of credit.............. (a) LIBOR + 163bp June 2001 $ 285,000 $ 351,000
Senior term loan............ (a) LIBOR + 275bp March 2004 249,000 250,000
Mortgage debt............... 3 hotels LIBOR + 200bp February 2003 62,239 62,553
Other....................... Uncollateralized Up to LIBOR + 200bp Various 11,032 32,282
---------- ----------
Total floating rate
debt................ 607,271 695,835
---------- ----------
Fixed Rate Debt:
Line of credit -- swapped... (a) 7.17-7.56% June 2001 125,000 313,000
Publicly-traded term
notes..................... (a) 7.38% October 2004 174,441 174,377
Publicly-traded term
notes..................... (a) 7.63% October 2007 124,271 124,221
Mortgage debt............... 15 hotels 7.24% November 2007 141,367 142,542
Senior term loan --
swapped................... (a) 8.56% March 2004 125,000 125,000
Mortgage debt............... 7 hotels 7.54% April 2009 98,354 99,075
Mortgage debt............... 6 hotels 7.55% June 2009 73,946 74,483
Mortgage debt............... 7 hotels 8.73% May 2010 144,865
Mortgage debt............... 8 hotels 8.70% May 2010 185,762
Other....................... 13 hotels 6.96%-7.23% 2000-2005 82,466 85,421
---------- ----------
Total fixed rate
debt................ 1,275,472 1,138,119
---------- ----------
Total debt............ $1,882,743 $1,833,954
========== ==========
</TABLE>
------------
(a) Collateralized by stock and partnership interests in certain subsidiaries
of FelCor, which were released upon the completion of the private offering
of Old Notes and the application of the net proceeds thereof.
The line of credit and the senior term loan contain various affirmative and
negative covenants, including limitations on total indebtedness, total secured
indebtedness, restricted payments (such as stock repurchases and cash
distributions), as well as the obligation to maintain certain minimum tangible
net worth and certain minimum interest and debt service coverage ratios. At June
30, 2000, the Company was not in default with respect to any such covenants.
The Company's other borrowings contain affirmative and negative covenants
that are generally equal to or less restrictive than the line of credit and
senior term loan. Most of the mortgage debt is nonrecourse to the Company (with
certain exceptions) and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions. Most of the mortgage debt is
prepayable, subject, however, to various prepayment penalties, yield
maintenance, or defeasance obligations.
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<PAGE> 61
At June 30, 2000, the Company had $50.8 million of cash and cash
equivalents and had utilized $410 million of the $850 million then available
under the line of credit.
On August 1, 2000, the Company renewed, reduced in size, and extended for
two years its line of credit. The new $600 million line of credit matures in
August 2003. The effective interest rate ranges from 87.5 basis points to 250
basis points above LIBOR depending on the Company's leverage and corporate
rating. The initial spread is 200 basis points.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its line of
credit and senior term loan without an exchange of the underlying principal
amount and effectively convert variable rate debt to a fixed rate. The fixed
rates to be paid, the effective fixed rate, and the variable rate to be received
by the Company at June 30, 2000, are summarized in the following table:
<TABLE>
<CAPTION>
EFFECTIVE
SWAP RATE
RECEIVED
NOTIONAL SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
AMOUNT PAID (FIXED) FIXED RATE 6/30/00 MATURITY
------------ ------------ ---------- ------------- ---------
<C> <S> <C> <C> <C> <C>
$ 25 million ..................... 5.5575% 7.1825% 8.2663% July 2001
25 million ..................... 5.5480 7.1730 8.2663 July 2001
75 million ..................... 5.5550 7.1800 8.2663 July 2001
100 million ..................... 5.7955 8.5455 9.3913 July 2003
25 million ..................... 5.8260 8.5760 9.3913 July 2003
------------
$250 million
============
</TABLE>
The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company, pursuant to the
terms of its interest rate agreement, and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk in that
the counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
who are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
The Company spent approximately $8.3 million during the quarter on
upgrading and renovating its hotels during the three months ended June 30, 2000
and a total of $22.9 million for the year 2000. It had completed renovations at
three hotels during the quarter and had 13 additional hotels undergoing
renovation at the end of the quarter. Room nights out-of-service, due to
renovation, were less than 1% during the quarter. The Company currently plans to
spend an additional $35 million on hotel renovations during the remainder of
2000 and expects an insignificant number of room nights to be lost as a result
of such renovations.
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is to changes in interest rates
on its floating rate debt. The Company manages the risk of increasing interest
rates on its floating rate debt through the use of interest rate swaps, which
effectively convert variable rate debt to a fixed rate, by locking the interest
rates paid. The Company had entered into interest rate swap contracts relating
to debt of $250 million at June 30, 2000.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including interest
rate swaps and debt obligations. For debt obligations at June 30, 2000, the
table presents scheduled maturities and weighted
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<PAGE> 62
average interest rates, by maturity dates. For interest rate swaps, the table
presents notional amounts and weighted average interest rates, by contractual
maturity dates. Weighted average variable rates are based on implied forward
rates in the yield curve as of June 30, 2000. The Fair Value of the Company's
fixed rate debt indicates the estimated principal amount of debt having the same
debt service requirements which could have been borrowed at June 30, 2000 at
then current market interest rates. The Fair Value of the Company's variable to
fixed interest rate swaps indicates the estimated amount that would have been
received by the Company had they been sold at June 30, 2000.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------
REMAINDER OF
2000 2001 2002 2003
------------ -------- ------- --------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C> <C>
LIABILITIES
Debt:
Fixed rate................. $ 6,656 $ 23,721 $13,040 $ 34,905
Average interest rate.... 8.01% 9.38% 8.19% 8.09%
Variable rate.............. $10,712 $411,711 $ 1,785 $ 61,413
Average interest rate.... 8.29% 8.84% 9.92% 9.57%
INTEREST RATE DERIVATIVES
Interest rate swaps:
Variable to fixed.......... $125,000 $125,000
Average pay rate......... 5.55% 5.80%
Average receive rate..... 7.21% 7.56%
<CAPTION>
EXPECTED MATURITY DATE
-------------------------------
2004 2005 THEREAFTER TOTAL FAIR VALUE
-------- ------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C> <C> <C>
LIABILITIES
Debt:
Fixed rate................. $188,669 $43,090 $715,391 $1,025,472 $913,929
Average interest rate.... 7.44% 8.67% 8.05%
Variable rate.............. $371,000 $ 650 $ 857,271 $857,271
Average interest rate.... 10.31% 9.63%
INTEREST RATE DERIVATIVES
Interest rate swaps:
Variable to fixed.......... $ 250,000 $ 6,207
Average pay rate.........
Average receive rate.....
</TABLE>
Swap contracts, such as those described above, contain a credit risk, in
that the counterparties may be unable to fulfill the terms of the agreement. The
Company minimizes that risk by evaluating the creditworthiness of its
counterparties, who are limited to major banks and financial institutions, and
does not anticipate nonperformance by the counterparties.
INFLATION
Operators of hotels, in general, possess the ability to adjust room rates
daily to reflect the effects of inflation. Competitive pressures may, however,
limit the Lessees' ability to raise room rates.
SEASONALITY
The hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent that cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize cash on hand or
borrowings under the line of credit to make distributions to its equity holders.
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<PAGE> 63
BUSINESS AND PROPERTIES
COMPANY OVERVIEW
We are one of the nation's largest hotel REITs, with ownership interests in
188 hotels at August 31, 2000, with nearly 50,000 rooms and suites. We own a
100% interest in 163 hotels with 42,292 rooms and suites, a 90% or greater
interest in entities owning seven hotels with 1,745 rooms and suites, a 60%
interest in an entity owning two hotels with 983 rooms and a 50% interest in
separate entities that own 16 hotels with 4,018 rooms and suites. Our hotels are
located in the United States (35 states) and Canada, with a concentration in
Texas (41 hotels), California (20 hotels), Florida (18 hotels) and Georgia (15
hotels).
We own the largest number of Embassy Suites, Crowne Plaza, Holiday Inn and
independently owned Doubletree-branded hotels in the world.
We seek to increase operating cash flow through both internal growth and
selective acquisitions, while maintaining a flexible and conservative capital
structure. In addition to renovating, redeveloping and repositioning our
acquired hotels, we may seek to acquire new upscale properties that will benefit
from affiliation with one of the premium brands available to us through our
strategic brand owner and manager relationships with Hilton, Bass and Starwood.
In support of this strategy, on July 28, 1998, we merged Bristol Hotel
Company into FelCor, acquiring its 107 primarily full-service hotels. These
hotels added more than 28,000 rooms and suites to our portfolio, more than
doubling our size. The merger also provided diversification, both geographically
and by asset class, by adding hotels in many of our key markets and broadening
our portfolio in the full-service, upscale and midscale hotel markets. During
1998, we purchased 16 hotels in addition to those acquired in the merger. During
1999, we sold six of the hotels acquired in the Bristol merger that did not meet
our investment criteria and acquired a 50% joint venture interest in one hotel.
We recently identified 25 non-strategic hotels which we presently intend to
sell. If sold, we expect gross sales proceeds from these hotels should be
approximately $150 million and net proceeds should be approximately $136 million
(after deducting estimated transaction costs, and the costs of terminating the
existing leases and management rights). To date, we have reached an agreement in
principle on the cost of terminating the leases on only 12 of these hotels. We
anticipate that the sale of these 25 hotels would result in a book loss of
approximately $63 million. Accordingly, our Board of Directors approved a $63
million reserve for the hotels held for sale at June 30, 2000, to reflect the
difference between our book value and the estimated market value of these
hotels. In addition to these hotels, on September 27, 2000, we sold our Embassy
Suites hotel, Los Angeles International Airport (North), California, for a gross
sale price of approximately $24 million, resulting in a gain on sale of
approximately $2.5 million.
THE INDUSTRY
The United States hotel industry profitability has improved each year since
1992, the longest sustained growth in history. According to
PricewaterhouseCoopers LLP's 1999 Lodging Industry Briefing, after a period of
extended unprofitability in the late 1980's and early 1990's, during which time
the increase in the supply of new hotel rooms significantly outpaced growth in
room demand, lodging industry profit increased every year from 1992 through 1999
and is expected to increase again in 2000. The percentage growth in room demand
exceeded percentage growth in new room supply from 1992 through 1996. While 1997
and 1998 experienced the highest number of new room starts in the prior 10
years, 1999 showed a decline in new room starts of 8.2% from the 1998 level. In
spite of the above-average
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<PAGE> 64
increases in room supply since 1995, according to PricewaterhouseCoopers LLP's
September 1997 and May 2000 Hospitality Directions, annual revenue per available
room has grown each year from 1995 through 1999 and is expected to continue to
grow in 2000.
Smith Travel Research, a leading provider of industry data, classifies
hotel chains into five distinct categories: Upper Upscale, Upscale, Midscale
With Food & Beverage, Midscale Without Food & Beverage, and Economy. We remain
focused on properties in the Upper Upscale (including Doubletree Guest Suites,
Embassy Suites, Sheraton and Westin hotels), Upscale (including Crowne Plaza,
Doubletree Hotels and Homewood Suites), and Midscale With Food & Beverage
(including Harvey, Holiday Inn and Holiday Inn Select hotels) categories, from
which we derived approximately 97% of our revenues in 1999.
Smith Travel Research also categorizes hotels based upon their relative
market positions, as measured by ADR, as Luxury, Upscale, Midprice, Economy and
Budget. The following table contains information with respect to average
occupancy, ADR and RevPAR for our hotels, as well as all Upscale U.S. hotels,
Midprice U.S. hotels and U.S. hotels as reported by Smith Travel Research, for
the periods indicated.
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
------ ------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF FELCOR HOTELS.............. 19 43 73 193 188 188
OCCUPANCY:
FelCor hotels(1)................... 73.8% 71.6% 73.2% 68.3% 68.3% 72.1%
All Upscale U.S. hotels(2)......... 68.5 68.4 67.9 65.9 65.1% 65.0
All Midprice U.S. hotels(3)........ 65.7 65.5 64.9 62.0 61.3% 61.2
All U.S. hotels.................... 65.2 65.1 64.5 63.8 63.3% 63.5
ADR:
FelCor hotels(1)................... $95.23 $105.50 $112.47 $96.62 100.72 $104.52
All Upscale U.S. hotels(2)......... 79.27 83.94 88.25 85.33 87.37 90.17
All Midprice U.S. hotels(3)........ 60.42 62.85 67.67 62.15 64.74 67.20
All U.S. hotels.................... 66.67 70.95 75.31 78.15 81.27 84.88
REVPAR:
FelCor hotels(1)................... $70.31 $ 75.52 $ 82.37 $66.02 68.77 $ 75.41
All Upscale U.S. hotels(2)......... 54.27 57.40 59.92 56.23 56.88 58.61
All Midprice U.S. hotels(3)........ 39.71 41.16 43.91 38.53 39.69 41.13
All U.S. hotels.................... 43.45 46.21 48.44 49.86 51.44 53.90
</TABLE>
------------
(1) Information is historical, including periods prior to ownership by FelCor.
(2) This category includes hotels in the "upscale price level," defined as
hotels with ADRs in the 70th to 85th percentiles in their respective
markets.
(3) This category includes hotels in the "midprice level," defined as hotels
with ADRs in the 40th to 70th percentiles in their respective markets.
BUSINESS STRATEGY
We seek to increase operating cash flow through active asset management. In
addition to actively overseeing the operation of our hotels by our lessees and
their managers, we apply our asset management expertise to the renovation,
redevelopment and rebranding of hotels, the maintenance of strong strategic
relationships with our brand owners and managers and the maintenance of
financial flexibility.
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<PAGE> 65
Hotel Renovation, Redevelopment and Rebranding
We have historically differentiated ourselves from many of our competitors
by:
- our practice of upgrading, renovating and/or redeveloping most of our
acquired hotels to enhance their competitive position, and, in certain
instances, rebranding them to improve their revenue generating capacity;
and
- our ongoing program for the maintenance of our upgraded hotel assets,
which includes:
- our contribution of at least 4% of annual room and suite revenue for the
DJONT hotels and 3% of total annual hotel revenue for the Bristol hotels
for routine capital replacements and improvements; and
- our ensuring that the lessees adhere to a maintenance and repair program
amounting to approximately 4.5% of annual hotel revenues.
We have demonstrated our ability to successfully execute renovations. Our
renovation and rebranding of the 18 Crown Sterling Suites hotels, which were
acquired during 1996 and 1997, achieved an overall RevPAR increase of 34.1%
between 1996 and 1999. During 1998 and 1999, an aggregate of approximately $442
million in capital improvements and other capital expenditures were made to our
hotels, with approximately 3% of total hotel room nights being lost in 1998 and
2% in 1999 due to renovations. During 2000, we currently expect to spend
approximately $15 million on the renovation of 28 hotels, approximately $42
million to complete renovations started in 1999 at 28 hotels, and approximately
$40 million for other capital expenditures. We are currently reviewing the
feasibility of undertaking between $4 and $10 million of additional renovations
during 2000. We expect an insignificant number of room nights to be lost during
2000 as a result of renovations. By the end of 2000, the Company will have spent
more than $900 million since 1994 on renovation and other capital expenditures
to its hotel portfolio, which should limit the need for future renovation
expenditures primarily to those necessary to maintain the hotels in their
upgraded condition.
The largest single renovation project completed during 1999 was the
Allerton Crowne Plaza in Chicago, which reopened in July 1999, after having been
closed for more than a year. This project has received numerous awards,
including Lodging Hospitality magazine's Year's Best Design competition in two
categories, Bass Hotels & Resorts 1999 Newcomer of the Year award, and Chicago's
Greater North Michigan Avenue Association 1999 Avenue Enhancement award.
Maintenance of Strong Strategic Relationships
We benefit from strategic brand owner and manager relationships with Hilton
(Embassy Suites and Doubletree), Bass (Crowne Plaza and Holiday Inn) and
Starwood (Sheraton and Westin).
- Hilton, which acquired Promus Hotel Corporation in 1999, now has a hotel
portfolio of more than 1,800 hotels with more than 300,000 rooms in 50
states and the District of Columbia, and is now the largest operator of
full-service, all-suite hotels in the United States. In addition to its
Hilton and Conrad International-branded hotels, Hilton now owns the
Embassy Suites, Doubletree and Doubletree Guest Suites brands and manages
71 of our hotels. As a result of its acquisition of Promus, Hilton
acquired an equity interest in our Company having an aggregate value of
approximately $32 million at August 31, 2000, and it became a 50% partner
in joint ventures with us in the ownership of 12 hotels and the holder of
a 10% equity interest in certain subsidiaries owning six hotels. The
relationship with Promus and its Embassy Suites brand provided the
foundation for our historical growth and we expect to expand our
relationship with Hilton, as the successor to Promus.
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<PAGE> 66
- Bass operates or franchises more than 2,900 hotels worldwide. Among the
brands owned by Bass are Crowne Plaza, Holiday Inn, Holiday Inn Select,
Holiday Inn Express and Inter-Continental. Bass, which acquired Bristol
on March 31, 2000, manages 101 of our hotels. Bass, also owns FelCor
common stock and FelCor LP units aggregating approximately 15.5% of our
outstanding common stock and units. Bass is one of the largest hotel
operating companies in the world.
- Starwood is one of the world's largest hotel operating companies.
Directly and through subsidiaries, Starwood owns, leases, manages or
franchises approximately 700 hotels with more than 217,000 rooms in 70
countries. Our strategic alliance with Starwood, coupled with the
purchase of seven Sheraton hotels in 1997, provided us with our initial
entry into the upscale, full-service, non-suite hotel market. Starwood
manages 11 of our hotels and is a 40% joint venture partner with us in
the ownership of two hotels and a 50% joint venture partner with us in
the ownership of one hotel.
MAINTENANCE OF FINANCIAL FLEXIBILITY
We are committed to maintaining substantial financial flexibility. In
funding our growth, we have used a broad selection of financing sources to
minimize our cost of capital, including public equity, collateralized
mortgage-backed securities, public and private debt, and asset divestitures. We
believe that our capital structure will continue to be among the most
conservative in the hotel REIT industry. We believe our financial flexibility
should enable us to purse selective hotel acquisition and expansion
opportunities and to take advantage of renovation, redevelopment and rebranding
opportunities to help us improve our competitive position.
MERGER WITH BRISTOL HOTEL COMPANY
Effective July 28, 1998, we merged with Bristol. As a result of the merger,
we issued approximately 31 million shares of FelCor common stock to Bristol's
shareholders (approximately 46% of FelCor's then outstanding common stock), and
FelCor succeeded to Bristol's interests in a net 107 owned or leased hotels.
Based upon the closing price of FelCor's common stock on the NYSE on July 27,
1998, the transaction was valued at approximately $1.7 billion, including the
assumption of approximately $870 million in debt.
As a result of the merger, we established ourself as one of the largest
lodging REITs in the nation. The merger added more than 28,000 rooms and suites
to our portfolio, more than doubling the size of the portfolio and providing
diversification, both geographically and by asset class, by adding hotels in
many key markets and broadening the portfolio in the full-service, upscale and
midscale hotel markets. Of the 107 acquired Bristol hotels, 87 are either
all-suite upscale, upscale full service, or traditional full service hotels. The
average Bristol hotel has 266 rooms or suites and more than 8,000 square feet of
meeting space. Based upon the closing price of FelCor's common stock on the NYSE
on July 27, 1998, the price per room/suite paid for the Bristol hotels was
approximately $59,000.
Following the effectiveness of the merger, FelCor contributed substantially
all of the assets acquired by it in the merger to FelCor LP in exchange for
additional units of general partner interest in FelCor LP. In addition,
following the merger, FelCor refinanced approximately $496 million of assumed
secured indebtedness, constituting approximately 72% of Bristol's total secured
debt, with borrowings under its credit facility.
Through the merger we established a significant brand owner and manager
relationship with Bass plc and its subsidiary, Bass Hotels & Resorts, which
acquired approximately 14% of FelCor's then outstanding common stock in the
merger. On March 31, 2000 Bass acquired Bristol through a merger. In connection
with the efforts of Bass to acquire Bristol, a Bass subsidiary contributed
approximately 4.7 million outstanding shares of FelCor common stock to the
Operating Partnership in exchange for a like number of units of limited
partnership interest.
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This exchange did not effect the Company's FFO or earnings per share, although
it resulted in reducing FelCor's percentage ownership in the Operating
Partnership from approximately 95% to approximately 88%. It is currently
anticipated that Bass will contribute an additional 1 million shares of FelCor
common stock to FelCor LP, for a like number of additional units, during
September 2000. As a result of the merger, in addition to being the owner of the
largest number of Embassy Suites hotels, FelCor also became the owner of the
largest number of Bass-branded hotels, including Crowne Plaza and Holiday Inn
hotels. The merger also established a strategic relationship with Bristol, which
is now a wholly-owned subsidiary of Bass plc following the merger of Bristol and
a subsidiary of Bass in March 2000. The Bristol hotels are leased to Bristol
pursuant to Percentage Leases. By the end of 2000, we expect to have
substantially completed the renovation, redevelopment and rebranding program
commenced by Bristol in November 1997, providing for the investment of
approximately $400 million in the renovation, redevelopment and/or rebranding of
Crowne Plaza and Holiday Inn hotels owned by FelCor and leased to Bristol. Under
this program, at June 30, 2000, the redevelopment of 60 hotels had been
completed and redevelopment was planned or in process on an additional 14
hotels.
Bass operates or franchises more than 2,700 hotels and 450,000 guestrooms
in more than 90 countries and territories under the brand names Holiday Inn,
Crowne Plaza and Inter-Continental Hotels, among others.
HOTELS HELD FOR SALE
FelCor has identified 25 non-strategic hotels which it presently intends to
sell. If sold, the Company expects gross sales proceeds from these hotels should
be approximately $150 million and net proceeds should be approximately $136
million (after deducting estimated transaction costs, and the costs of
terminating the existing leases and management rights). These hotels include
most of the Company's limited service hotels, a number of its small market
Holiday Inn hotels, and all of the Company's Marriott-branded hotels. These
hotels represent 8.3% of total rooms owned by the Company, but only 4.2% of
total revenues. Management believes the sale of these non-strategic hotels will
allow the Company and its brand managers to focus their efforts on the Company's
upscale and full service hotels in more strategic markets.
The Company anticipates that the sale of these hotels will result in a book
loss of approximately $63 million. Accordingly, FelCor's Board of Directors
approved a $63 million reserve for the hotels held for sale, to reflect the
difference between our book value and estimated market value for these hotels.
RECENT DEVELOPMENTS
During the first six months of 2000, we:
- had revenues of $283 million, after adding back deferred rent of $19
million, as compared to $262 million in the first six months of 1999;
- repurchased 3.1 million common shares pursuant to our stock repurchase
program, for approximately $56.7 million;
- had Funds From Operations (FFO) of $149 million, as compared to $154
million for the same period of 1999;
- had EBITDA of $239 million, as compared to EBITDA of $224 million for the
same period of 1999;
- completed an aggregate of $331 million of long-term fixed rate mortgage
financings, the proceeds of which were used to fund repurchases of our
stock and to reduce the size of our line of credit; and
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- identified 25 non-strategic hotels to be sold, with estimated aggregate
net proceeds of $136 million, and recorded a one-time reserve of $63
million in the second quarter to reflect the difference between our book
value and the estimated market value of these hotels.
Since June 30, 2000:
- we sold our Embassy Suites hotel, Los Angeles International
Airport(North), California (215 suites), for a gross sale price of
approximately $24 million, resulting in a gain on sale of approximately
$2.5 million;
- we renewed our line of credit; the line of credit was reduced from $850
million to $600 million and the maturity was extended from July 2001 to
August 2003; the effective interest rate ranges from 87.5 basis points to
250 basis points above LIBOR depending on our leverage and corporate
rating; and
- our independent directors approved the acquisition of 100% of DJONT
effective January 1, 2001, for an expected purchase price of
approximately 417,000 FelCor LP units; no binding agreements have been
entered into for this acquisition, and we cannot assure you that we will
successfully complete this transaction.
On January 1, 2001, the provisions of the REIT Modernization Act will
become effective. These provisions, among other things, will reduce the
distribution requirement for REITs from 95% of taxable income to 90% of taxable
income.
In addition, these provisions will allow REITs, subject to certain
limitations, to own (directly or indirectly) up to 100% of the stock of a
taxable REIT subsidiary ("TRS") that can engage in businesses previously
prohibited to a REIT. In particular, these provisions will permit hotel REITs to
own a TRS that can lease hotels from the REIT, rather than requiring the lessee
to be a separate, unaffiliated party. Hotels leased to a TRS will still have to
be managed, however, by an unaffiliated third party. The TRS provisions are
complex and impose several conditions on the use of TRSs, generally to assure
that TRSs are subject to an appropriate level of corporate taxation. Further, no
more than 20% of a REIT's assets may consist of securities of TRSs, and no more
than 25% of a REIT's assets may consist of non-qualifying assets, including
securities of TRSs and other taxable subsidiaries. Although the TRS provisions
will become effective on January 1, 2001, a taxable subsidiary of FelCor in
existence on July 12, 1999, such as Kingston Plantation Development Corp.
("Kingston"), a corporation of which FelCor LP owns 100% of the nonvoting stock,
representing 97% of the value of Kingston's outstanding stock, will be
grandfathered unless and until (1) it engages in a new line of business or
acquires a substantial new asset or (2) FelCor acquires additional stock in the
taxable subsidiary. Such existing taxable subsidiaries can be converted into
TRSs on a tax-free basis at any time before January 1, 2004. As a result of
these provisions, we will be able to form or acquire a TRS to acquire all or a
portion of our existing hotel leases and to serve as the lessee for any hotels
we acquire after the effective date of the TRS provisions. Any "profit" from
leases held by the TRS, after payment of the applicable corporate tax, will be
available for distribution to us.
As a result of the passage of the REIT Modernization Act, on July 21, 2000,
our independent directors approved the acquisition of 100% of DJONT effective
January 1, 2001. The purchase price is expected to be approximately 417,000
FelCor LP units (currently valued at $9.3 million based upon the $22.375 closing
share price on August 31, 2000). No binding agreements have been entered into
for this acquisition. We expect the benefits to us from the purchase of DJONT,
if completed, will include: (i) a more direct relationship with the hotel and
brand managers, (ii) elimination of potential conflicts of interest and (iii)
consolidated hotel level financial reporting. We are currently negotiating with
Bass to acquire the Bristol lessee or
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the leases held by it, although at this time we have not entered into a
definitive agreement for this acquisition. We cannot assure you that we will
successfully complete these transactions.
HOTEL BRANDS
Embassy Suites Hotels
Fifty-nine of our hotels are Embassy Suites hotels operating under
franchise licenses from Hilton. Embassy Suites hotels are upscale, full-service,
all-suite hotels designed to attract frequent business travelers, leisure
travelers and weekend guests. Embassy Suites consistently achieves one of the
highest guest satisfaction ratings in the industry. Embassy Suites hotels offer
numerous services and amenities, such as:
- two-room suites, containing two telephones, a mini-refrigerator, coffee
maker, microwave oven, wet bar, and two color televisions;
- complimentary, full, cooked-to-order breakfast;
- complimentary cocktails during two hours every evening (subject to local
laws and regulations) in an atrium environment;
- fitness center, indoor heated pool, sauna, whirlpool and steam room; and
- guest laundry and valet services.
Restaurant, banquet, in-room dining and lounge services are available to guests
at customary rates. Embassy Suites hotels are constructed, maintained and
operated in accordance with a comprehensive set of building, maintenance,
operational, record keeping and reservation system guidelines designed to ensure
a uniformly high level of service, appearance and quality. The Embassy Suites
system was among the first hotel chains to offer guests an unconditional 100%
satisfaction guarantee.
Embassy Suites, the predecessor-in-interest to Promus, was organized in
1983, and the first Embassy Suites hotel was opened in Overland Park, Kansas in
1984. Mr. Feldman, Chairman Emeritus of the Company, served as the founding
President and Chief Executive Officer of Embassy Suites from 1983 until 1990,
and as its Chairman of the Board from 1990 until January 1992. From 30 hotels in
10 states at December 31, 1984, the Embassy Suites chain has grown to over 150
hotels in 35 states.
In November 1999, Promus Hotel Corporation and Hilton Hotels Corporation
merged, resulting in Hilton becoming one of the world's largest hotel companies.
It now franchises and operates the following hotels:
- Conrad International;
- Doubletree, Doubletree Guest Suites, and Doubletree Club Hotels;
- Embassy Suites;
- Hampton Inn;
- Hampton Inn & Suites;
- Hilton;
- Hilton Garden Inn;
- Harrison Conference Centers;
- Homewood Suites by Hilton; and
- Red Lion Hotels & Inns.
Hilton's hotel portfolio includes more than 1,800 hotels with more than 300,000
rooms in 50 states and the District of Columbia.
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Doubletree and Doubletree Guest Suites Hotels
Eleven of our hotels are Doubletree Guest Suites hotels. The Doubletree
Guest Suites all-suite hotels comprise one of the largest all-suite hotel chains
in the United States, as measured by number of suites and system revenues. The
Doubletree Guest Suites all-suite hotels are targeted at business travelers and
families who need or desire greater space than that which is typically provided
at traditional hotels. Each guest suite has a separate living room and
dining/work area, with a color television, refrigerator and wet bar.
Three of our hotels are licensed as full-service Doubletree hotels.
Traditional full-service Doubletree hotels are targeted at business travelers,
group meetings and leisure travelers, and typically include a swimming pool,
gift shop, meeting and banquet facilities, at least one restaurant and cocktail
lounge, room service, parking facilities and other amenities.
Holiday Inn and Holiday Inn Select Hotels
Forty-four of our hotels are Holiday Inn hotels and 10 of our hotels are
Holiday Inn Select hotels. The Holiday Inn brand is positioned to attract the
business and leisure traveler seeking up-to-date products and features, value
and friendly service. Holiday Inn hotels typically offer a full-service
restaurant and lounge, swimming pool, meeting and banquet facilities, optional
fitness center and electronic locks. In-room amenities generally include a hair
dryer, coffee maker, iron and ironing board, alarm/clock radio and 25"
television. The Holiday Inn name is recognized around the world, with more than
1,500 hotels currently being operated under this brand.
The Holiday Inn Select hotels are focused on the business traveler. Each
room offers a residential decor with a well-lit work area, including a dataport
and voicemail, and in-room coffee makers. Amenities offered at the Holiday Inn
Select hotels generally include full business services such as photocopying and
telecopying, meeting capabilities for small to mid-size groups, swimming pool,
exercise facilities and full-service restaurant and lounge. There are more than
70 Holiday Inn Select hotels operating in the Americas.
The Holiday Inn, Holiday Inn Select and Crowne Plaza brands are part of the
family of brands owned, operated and franchised by Bass. Bass operates or
franchises more than 2,900 hotels worldwide.
Crowne Plaza Hotels
Eighteen of our hotels are Crowne Plaza and Crowne Plaza Suites hotels.
Crowne Plaza hotels offer upscale accommodations for business and leisure
travelers looking for a full range of services. Guests receive personalized
attention, including welcoming valet and bell staff, concierge service and full
health and exercise facilities. Large guest rooms provide a well-lit work area,
two telephones with dataport and voicemail, in-room coffee maker, iron, hair
dryer, make-up mirror and free newspaper delivered every weekday. Full business
services are available to handle guest secretarial requirements. Crowne Plaza
hotels also provide attractive and functional meeting areas that are suitable
for a variety of occasions, ranging from small private gatherings to banquets
and large conferences. There are currently more than 140 Crowne Plaza hotels and
over 40,000 guest rooms in major urban centers, gateway cities and resort
destinations worldwide.
Sheraton Hotels
Four of our hotels are Sheraton Suites hotels. Sheraton Suites hotels
typically offer two-room suites, each with a wet bar, refrigerator, microwave,
coffee maker and two televisions. Restaurant, lounge, swimming pool and fitness
center facilities are also typically available to guests.
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Six of our hotels are full-service upscale Sheraton hotels. While each of
these hotels offers some suite accommodations, the substantial percentage of the
accommodations are non-suite rooms. Sheraton hotels generally offer numerous
amenities and facilities, such as multiple restaurants, banquet and meeting
space, recreational facilities (including indoor and/or outdoor pools and
fitness centers) and business centers.
Sheraton hotels, including Sheraton Suites, are part of Starwood Hotels &
Resorts, which owns the Sheraton, Westin and other brand names. Starwood owns,
leases, manages and/or franchises approximately 700 hotels with over 217,000
rooms in over 70 countries.
Other Hotels
Thirty-two hotels are operated under other brands, as follows:
- Hampton Inn (9 hotels);
- Holiday Inn Express (5 hotels);
- Fairfield Inn (5 hotels);
- Harvey Hotel (4 hotels);
- Courtyard by Marriott (2 hotels);
- Hilton Suites (1 hotel);
- Homewood Suites (1 hotel);
- Four Points by Sheraton (1 hotel);
- Westin (1 hotel); and
- Independents (3 hotels).
HOTEL PORTFOLIO
The following table sets forth certain descriptive information regarding
our hotels at August 31, 2000:
<TABLE>
<CAPTION>
YEAR ACQUIRED NUMBER OF
LOCATION FRANCHISE BRAND LESSEE BY THE COMPANY ROOMS/SUITES
-------- ----------------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
Birmingham, AL(4).............................. Embassy Suites DJONT 1996 242
Montgomery (East I-85), AL..................... Holiday Inn Bristol 1998 213
Flagstaff, AZ.................................. Embassy Suites DJONT 1995 119
Phoenix (Airport-44th St.), AZ................. Embassy Suites DJONT 1998 229
Phoenix (Camelback), AZ........................ Embassy Suites DJONT 1996 233
Phoenix (Crescent), AZ(4)...................... Sheraton DJONT 1997 342
Scottsdale (Downtown), AZ(1)(7)................ Fairfield Inn Bristol 1998 218
Tempe (ASU), AZ(4)............................. Embassy Suites DJONT 1998 224
Texarkana (I-30), AR(1)........................ Holiday Inn Bristol 1998 210
Anaheim (Disney Area), CA(4)................... Embassy Suites DJONT 1996 222
Burlingame (S.F. Airport So.), CA(1)........... Embassy Suites DJONT 1995 339
Covina (I-10), CA(2)(4)........................ Embassy Suites DJONT 1997 264
Dana Point, CA................................. Doubletree Guest Suites DJONT 1997 198
El Segundo (LAX Airport South), CA(1).......... Embassy Suites DJONT 1996 350
Irvine (Orange County Airport), CA............. Crowne Plaza Bristol 1998 335
Los Angeles (LAX Airport North), CA(6)......... Embassy Suites DJONT 1997 215
Milpitas, CA(4)................................ Embassy Suites DJONT 1996 267
Milpitas (San Jose North), CA.................. Crowne Plaza Bristol 1998 305
Napa, CA(4).................................... Embassy Suites DJONT 1996 205
Oxnard (Mandalay Beach), CA.................... Embassy Suites DJONT 1996 249
Palm Desert, CA(4)............................. Embassy Suites DJONT 1998 198
Pleasanton, CA................................. Crowne Plaza Bristol 1998 244
Santa Barbara, CA(4)........................... Holiday Inn Bristol 1998 160
San Diego (On the Bay), CA(1).................. Holiday Inn Bristol 1998 600
San Francisco (Financial District), CA(1)...... Holiday Inn Bristol 1998 566
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
YEAR ACQUIRED NUMBER OF
LOCATION FRANCHISE BRAND LESSEE BY THE COMPANY ROOMS/SUITES
-------- ----------------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
San Francisco (Fisherman's Wharf), CA(1)....... Holiday Inn Bristol 1998 584
San Francisco (Union Square), CA............... Crowne Plaza Bristol 1998 400
San Rafael (Marin Co.), CA(2)(4)............... Embassy Suites DJONT 1996 235
South San Francisco (S.F. Airport No.), CA(4).. Embassy Suites DJONT 1996 312
Aurora (Denver (SE)), CO....................... Doubletree DJONT 1998 248
Avon (Beaver Creek Resort), CO................. Independent 1996 72
Hartford (Downtown), CT........................ Crowne Plaza Bristol 1998 342
Stamford, CT(1)................................ Holiday Inn Select Bristol 1998 383
Wilmington, DE................................. Doubletree DJONT 1998 244
Boca Raton, FL(7).............................. Doubletree Guest Suites DJONT 1995 182
Boca Raton, FL................................. Embassy Suites DJONT 1996 263
Cocoa Beach (Oceanfront Resort), FL............ Holiday Inn Bristol 1998 500
Deerfield Beach, FL(4)......................... Embassy Suites DJONT 1996 244
Ft. Lauderdale, FL(4).......................... Embassy Suites DJONT 1996 359
Ft. Lauderdale (Cypress Creek), FL(4).......... Sheraton Suites DJONT 1998 253
Jacksonville, FL............................... Embassy Suites DJONT 1994 277
Kissimmee (Nikki Bird), FL(1).................. Holiday Inn Bristol 1998 529
Lake Buena Vista (Walt Disney World), FL(1).... Doubletree Guest Suites DJONT 1997 229
Miami (Airport), FL(1)......................... Crowne Plaza Bristol 1998 304
Miami (Airport), FL(4)......................... Embassy Suites DJONT 1996 314
Orlando (North), FL............................ Embassy Suites DJONT 1994 277
Orlando (South), FL(4)......................... Embassy Suites DJONT 1994 244
Orlando (International Drive Resort), FL....... Holiday Inn Bristol 1998 652
Orlando (Airport), FL.......................... Holiday Inn Select Bristol 1998 288
Tampa (Busch Gardens), FL(7)................... Doubletree Guest Suites DJONT 1995 129
Tampa (Rocky Point), FL........................ Doubletree Guest Suites DJONT 1997 203
Tampa (Near Busch Gardens), FL(1).............. Holiday Inn Bristol 1998 395
Atlanta (Downtown), GA(7)...................... Courtyard by Marriott Bristol 1998 211
Atlanta (Airport), GA.......................... Crowne Plaza Bristol 1998 378
Atlanta (Powers Ferry), GA(4).................. Crowne Plaza Bristol 1998 296
Atlanta (Buckhead), GA(4)...................... Embassy Suites DJONT 1996 317
Atlanta (Airport), GA.......................... Embassy Suites DJONT 1998 233
Atlanta (Perimeter Center), GA(2)(4)........... Embassy Suites DJONT 1997 241
Atlanta (Downtown), GA(7)...................... Fairfield Inn Bristol 1998 242
Marietta, GA(7)................................ Hampton Inn Bristol 1998 140
Atlanta (Airport North), GA(1)(4).............. Holiday Inn Bristol 1998 493
Atlanta (Jonesboro South), GA(4)............... Holiday Inn Bristol 1998 180
Atlanta (Perimeter Dunwoody), GA(4)............ Holiday Inn Select Bristol 1998 250
Atlanta (Airport Gateway), GA.................. Sheraton DJONT 1997 395
Atlanta (Galleria), GA(4)...................... Sheraton Suites DJONT 1997 278
Brunswick, GA.................................. Embassy Suites DJONT 1995 130
Columbus (Airport North), GA(1)................ Holiday Inn Bristol 1998 223
Chicago (Allerton), IL......................... Crowne Plaza Bristol 1998 443
Chicago (Lombard), IL(2)(4).................... Embassy Suites DJONT 1995 262
Chicago (O'Hare), IL(4)........................ Sheraton Suites DJONT 1997 297
Deerfield, IL(4)............................... Embassy Suites DJONT 1996 237
Moline, IL(7).................................. Hampton Inn Bristol 1998 138
Moline (Airport), IL(7)........................ Holiday Inn Bristol 1998 216
Moline (Airport), IL(7)........................ Holiday Inn Express Bristol 1998 111
Indianapolis (North), IN(2)(4)................. Embassy Suites DJONT 1996 222
Davenport, IA(7)............................... Hampton Inn Bristol 1998 132
Davenport, IA(7)............................... Holiday Inn Bristol 1998 287
Colby, KS(7)................................... Holiday Inn Express Bristol 1998 72
Great Bend, KS(7).............................. Holiday Inn Bristol 1998 175
Hays, KS(7).................................... Hampton Inn Bristol 1998 116
Hays, KS(7).................................... Holiday Inn Bristol 1998 190
Overland Park, KS(2)(4)........................ Embassy Suites DJONT 1997 199
Salina, KS(4)(7)............................... Holiday Inn Bristol 1998 192
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
YEAR ACQUIRED NUMBER OF
LOCATION FRANCHISE BRAND LESSEE BY THE COMPANY ROOMS/SUITES
-------- ----------------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
Salina (I-70), KS(7)........................... Holiday Inn Express Bristol 1998 93
Hotel & Suites
Lexington, KY.................................. Hilton Suites DJONT 1996 174
Lexington, KY(4)............................... Sheraton Suites DJONT 1998 155
Baton Rouge, LA(4)............................. Embassy Suites DJONT 1996 224
New Orleans, LA(4)............................. Embassy Suites DJONT 1994 372
New Orleans (Chateau LeMoyne), LA(1)(2)(4)..... Holiday Inn 1998 171
New Orleans (French Quarter), LA(1)(4)......... Holiday Inn Bristol 1998 276
Baltimore, MD.................................. Embassy Suites DJONT 1997 251
Boston (Marlborough), MA(4).................... Embassy Suites DJONT 1995 229
Boston (Government Center), MA(1).............. Holiday Inn Select Bristol 1998 303
Leominster, MA(7).............................. Four Points(R) Bristol 1998 187
Troy, MI....................................... Embassy Suites DJONT 1997 251
Bloomington, MN................................ Embassy Suites DJONT 1997 219
Minneapolis (Airport), MN(4)................... Embassy Suites DJONT 1995 311
Minneapolis (Downtown), MN..................... Embassy Suites DJONT 1995 218
St. Paul, MN(3)................................ Embassy Suites DJONT 1995 210
Jackson (Downtown), MS(4)...................... Crowne Plaza Bristol 1998 354
Jackson (Briarwood), MS(4)(7).................. Hampton Inn Bristol 1998 119
Jackson (North), MS(4)......................... Holiday Inn Hotel & Bristol 1998 224
Suites
Olive Branch (Whispering Woods Hotel and
Conference Center), MS....................... Independent Bristol 1998 179
Kansas City (Country Club Plaza),
MO(1)(2)(4).................................. Embassy Suites DJONT 1997 266
Kansas City (Northeast), MO.................... Holiday Inn Bristol 1998 167
St. Louis (Downtown), MO....................... Embassy Suites DJONT 1998 297
St. Louis (Westport), MO(4).................... Holiday Inn Bristol 1998 318
Omaha, NE...................................... Doubletree Guest Suites DJONT 1998 189
Omaha (Central), NE(4)......................... Hampton Inn Bristol 1998 132
Omaha (Southwest), NE.......................... Hampton Inn Bristol 1998 131
Omaha (I-80), NE(4)............................ Holiday Inn Bristol 1998 383
Omaha (Old Mill Northwest), NE................. Crowne Plaza Bristol 1998 213
Omaha (Southwest), NE.......................... Holiday Inn Express Bristol 1998 78
Hotel & Suites
Omaha (Southwest), NE.......................... Homewood Suites Bristol 1998 108
Parsippany, NJ(2)(4)........................... Embassy Suites DJONT 1996 274
Piscataway, NJ(4).............................. Embassy Suites DJONT 1996 225
Secaucus, NJ(1)(2)............................. Embassy Suites DJONT 1997 261
Meadowlands, NJ................................ Crowne Plaza Bristol 1998 301
Albuquerque (Mountainview), NM................. Holiday Inn Bristol 1998 360
Syracuse, NY................................... Embassy Suites DJONT 1997 215
Charlotte, NC(2)(4)............................ Embassy Suites DJONT 1996 274
Raleigh/Durham, NC............................. Doubletree Guest Suites DJONT 1997 203
Raleigh, NC(2)(4).............................. Embassy Suites DJONT 1997 225
Cleveland, OH.................................. Embassy Suites DJONT 1995 268
Columbus, OH................................... Doubletree Guest Suites DJONT 1998 194
Dayton, OH(4).................................. Doubletree Guest Suites DJONT 1997 138
Tulsa, OK...................................... Embassy Suites DJONT 1994 240
Philadelphia (Center City), PA(4).............. Crowne Plaza Bristol 1998 445
Philadelphia (Independence Mall), PA(4)........ Holiday Inn Bristol 1998 364
Philadelphia (Society Hill), PA(4)............. Sheraton DJONT 1997 365
Pittsburgh, PA(1)(4)........................... Holiday Inn Select Bristol 1998 251
Charleston (Mills House), SC................... Holiday Inn Bristol 1998 214
Greenville (Roper), SC......................... Crowne Plaza Bristol 1998 208
Myrtle Beach (Kingston Plantation), SC......... Embassy Suites DJONT 1996 255
Knoxville (Central), TN(1)..................... Holiday Inn Bristol 1998 242
Nashville (Airport), TN(7)..................... Doubletree Guest Suites DJONT 1997 138
Nashville, TN.................................. Embassy Suites DJONT 1994 296
Nashville (Opryland/Airport), TN(1)............ Holiday Inn Select Bristol 1998 385
</TABLE>
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<PAGE> 74
<TABLE>
<CAPTION>
YEAR ACQUIRED NUMBER OF
LOCATION FRANCHISE BRAND LESSEE BY THE COMPANY ROOMS/SUITES
-------- ----------------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
Amarillo (I-40), TX(1)......................... Holiday Inn Bristol 1998 247
Austin (Downtown), TX.......................... Doubletree Guest Suites DJONT 1997 189
Austin (Airport North), TX(2)(4)............... Embassy Suites DJONT 1997 261
Austin (Town Lake), TX......................... Holiday Inn Bristol 1998 320
Beaumont (Midtown I-10), TX.................... Holiday Inn Bristol 1998 253
Corpus Christi, TX(4).......................... Embassy Suites DJONT 1995 150
Dallas, TX, Bristol House...................... Independent Bristol 1998 127
Addison (North Dallas), TX(4).................. Crowne Plaza Bristol 1998 429
Dallas (Market Center), TX(4).................. Crowne Plaza Bristol 1998 354
Dallas (Park Central), TX(4)................... Crowne Plaza Suites Bristol 1998 295
Dallas (Campbell Center), TX................... Doubletree DJONT 1998 302
Dallas (DFW Airport South), TX................. Embassy Suites DJONT 1998 305
Dallas (Love Field), TX(4)..................... Embassy Suites DJONT 1995 248
Dallas (Market Center), TX(4).................. Embassy Suites DJONT 1997 244
Dallas (Park Central), TX...................... Embassy Suites DJONT 1994 279
Dallas (Regal Row), TX(7)...................... Fairfield Inn Bristol 1998 204
Dallas (Downtown West End), TX................. Hampton Inn Bristol 1998 311
Dallas, TX(4).................................. Harvey Hotel Bristol 1998 313
Irving (DFW Airport North), TX(4).............. Harvey Hotel Bristol 1998 506
Irving (DFW Airport North), TX(4).............. Harvey Suites Bristol 1998 164
Dallas (Park Central), TX(5)................... Sheraton DJONT 1998 438
Dallas (Park Central), TX(5)................... Westin DJONT 1997 545
Houston (Near the Galleria), TX(7)............. Courtyard by Marriott Bristol 1998 209
Houston (Medical Center), TX(4)................ Crowne Plaza Bristol 1998 297
Houston (Near the Galleria), TX(7)............. Fairfield Inn Bristol 1998 107
Houston (I-10 East), TX(7)..................... Fairfield Inn Bristol 1998 160
Houston (I-10 East), TX(7)..................... Hampton Inn Bristol 1998 90
Houston (Medical Center), TX(1)(4)............. Holiday Inn Hotel & Bristol 1998 285
Suites
Houston (International Airport), TX(4)......... Holiday Inn Bristol 1998 401
Houston (I-10 West), TX........................ Holiday Inn Select Bristol 1998 345
Houston (Near Greenway Plaza), TX(4)........... Holiday Inn Select Bristol 1998 355
Midland (Country Villa), TX.................... Holiday Inn Bristol 1998 250
Odessa (Parkway Blvd.), TX..................... Holiday Inn Express Bristol 1998 186
Hotel & Suites
Odessa (Centre), TX............................ Holiday Inn Hotel & Bristol 1998 245
Suites
Plano, TX(4)................................... Harvey Hotel Bristol 1998 279
Plano, TX...................................... Holiday Inn Bristol 1998 161
San Antonio (Airport), TX(2)(4)................ Embassy Suites DJONT 1997 261
San Antonio (Northwest), TX(2)(4).............. Embassy Suites DJONT 1997 217
San Antonio (Downtown), TX(1).................. Holiday Inn Bristol 1998 315
San Antonio (International Airport), TX........ Holiday Inn Select Bristol 1998 397
Waco (I-35), TX................................ Holiday Inn Bristol 1998 171
Salt Lake City (Airport), UT(1)................ Holiday Inn Bristol 1998 191
Burlington, VT(4).............................. Sheraton DJONT 1997 309
Tysons Corner, VA(2)(4)........................ Sheraton DJONT 1999 437
Cambridge, Canada.............................. Holiday Inn Bristol 1998 139
Kitchener (Waterloo), Canada................... Holiday Inn Bristol 1998 182
Peterborough (Waterfront), Canada.............. Holiday Inn Bristol 1998 155
Sarnia, Canada................................. Holiday Inn Bristol 1998 151
Toronto (Yorkdale), Canada..................... Holiday Inn Bristol 1998 370
Toronto (Airport), Canada...................... Holiday Inn Select Bristol 1998 444
</TABLE>
------------
(1) Situated on land leased under a long-term ground lease.
(2) This hotel is one of 16 hotels owned by unconsolidated entities in which the
Company owns a 50% equity interest.
(3) Owned subject to a capitalized industrial revenue bond lease that expires in
2011 and permits the Company to purchase the fee interest at expiration for
a nominal amount.
(4) Encumbered by mortgage debt.
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(5) This hotel is one of two hotels owned by a joint venture in which the
Company owns a 60% equity interest.
(6) This hotel was sold on September 27, 2000.
(7) This hotel is one of the 25 non-strategic hotels which the Company intends
to sell.
HOTEL OPERATIONS
The Six Months Ended June 30, 2000
For the six months ended June 30, 2000, RevPAR of the comparable hotel
portfolio (which includes those hotels that were not undergoing major
renovations for the period in either the current year or prior year and excludes
hotels held for sale) (121 hotels) increased 5.5% over the same period in 1999.
Comparable hotel RevPAR changes for the six months by brand are as follows:
<TABLE>
<S> <C>
Embassy Suites (50 hotels).................................. 6.5%
Holiday Inn branded hotels (33 hotels)...................... 7.5
Crown Plaza (13 hotels)..................................... 6.2
Doubletree branded hotels (8 hotels)........................ 1.7
Sheraton (4 hotels)......................................... 1.4
Other (13 hotels)........................................... (3.8)
All comparable hotels (121 hotels).......................... 5.5%
</TABLE>
The Company attributes much of the improvement in RevPAR to the renovation,
rebranding and reposition program in which the Company has spent approximately
$465 million in 1998, 1999 and the first six months of 2000.
The non-comparable hotel portfolio's (42 hotels) RevPAR increased 17.5%
over the same period in 1999. Included in the non-comparable hotels is the
Allerton Crowne Plaza (increased RevPAR by 236% for the second quarter), which
was closed for renovation in the third quarter of 1998 and partially reopened in
the second quarter of 1999. The non-comparable hotels, excluding the Allerton,
had an increase in RevPAR of 11.6%.
The Year Ended December 31, 1999
Our 104 comparable hotels, owned at December 31, 1999, produced a RevPAR
increase of 0.7% over 1998. The Company's exposure in overbuilt markets, such as
Dallas, Texas, had a negative impact on comparable hotel trends during 1999,
although management expects the rate of new supply additions to decline in 2000.
During 1999, the Company's Texas hotels, experienced a 3.9% decrease in RevPAR,
while the 10 comparable hotels in the Dallas market experienced a 5.9% decline
in RevPAR. Management is encouraged, although it continues to see an oversupply
in the Dallas market, that the situation appears to be improving and supply
growth is now expected to begin a gradual decline. In addition, the Company has
recently renovated eight of its 18 Dallas-based properties and management is
currently projecting positive RevPAR growth for the majority of its hotels in
this market during 2000.
The non-comparable hotel portfolio's (84 hotels) RevPAR increased 4.5% over
the same period in 1999. The portfolio's performance was most profoundly
affected by the Allerton Crowne Plaza, which was closed for renovation in the
third quarter 1998 and partially reopened in the second quarter of 1999. The
Allerton generated an 84.3% increase in its RevPAR for the year ended December
31, 1999, as compared to the same period in 1998. Many of the remainder of the
non-comparable hotels where renovations had been completed also showed
improvements in RevPAR, which are attributed to the completion of renovations at
these hotels.
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THE PERCENTAGE LEASES
Lease Terms
Each of the hotels (with two exceptions) is leased pursuant to a Percentage
Lease. The terms of each Percentage Lease with DJONT were approved by FelCor's
independent directors at the time the lease was executed.
The DJONT Percentage Leases
The principal terms of the Percentage Leases with DJONT (DJONT Leases) are
summarized below, although certain terms vary from hotel to hotel.
Term. The DJONT Leases typically have a term of 10 years.
Rent. The annual base rent is typically set at approximately 60% of the
initial year's anticipated total rent. The percentage rent is calculated in two
tiers: a first tier typically equal to 17% of room and suite revenues up to a
specified amount (Room and Suite Revenue Breakpoint) and a second tier typically
equal to 65% of room and suite revenues above such Room and Suite Revenue
Breakpoint. In addition, the DJONT Lessee typically pays us 5% of the food and
beverage revenues from each hotel in which the restaurant and bar operations are
conducted directly by the DJONT Lessee and 98% of the food and beverage rent
revenues from each hotel in which the restaurant and bar operations are
subleased by the DJONT Lessee to an unrelated third party.
The amount of base rent and of the Room and Suite Revenue Breakpoint in
each DJONT Lease formula generally is subject to adjustment, annually, based
upon a formula taking into account changes in the Consumer Price Index. The
adjustment is calculated at the beginning of each calendar year, for the hotels
acquired prior to July of the previous year. The adjustment in any year may not
exceed 7%. The Consumer Price Index adjustment for 1996 was 0.74%, for 1997 was
1.42%, for 1998 was 0.50%, for 1999 was 0.55% and for 2000 was 1.05%.
Events of Default. If an event of default occurs and continues beyond any
curative period, we may terminate the DJONT Lease or any or all other DJONT
Leases. Events of default under the DJONT Leases include typical defaults such
as failure to pay rent, certain insolvency events and, among others, the
following:
- the breach by the DJONT Lessee of any term of a DJONT Lease that is not
cured within certain specified periods or an event of default under any
other DJONT Lease;
- if the DJONT Lessee voluntarily discontinues operations of a leased hotel
for more than 30 days, except as a result of damage, destruction, or
condemnation; or
- if the franchise agreement with respect to a leased hotel is terminated
by the franchisor as a result of any action or failure to act by the
DJONT Lessee or its agents.
Termination of Percentage Leases on Disposition of the Hotels. If we enter
into an agreement to sell or otherwise transfer a leased hotel, we may terminate
the DJONT Lease with respect to such leased hotel upon 90 days' prior written
notice upon either (1) paying the DJONT lessee the fair market value of the
leasehold interest in the remaining term of the DJONT lease to be terminated or
(2) offering to lease a substitute hotel on terms that would create a leasehold
interest with a fair market value equal to or exceeding the fair market value of
the remaining leasehold interest under the DJONT Lease to be terminated. We must
also pay, or reimburse the DJONT lessee, for certain fees and expenses resulting
from the termination of the DJONT Lease.
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<PAGE> 77
Maintenance and Modifications. Under the DJONT Leases, we must:
- maintain the underground utilities and the structural elements of the
improvements, including exterior walls (excluding plate glass) and the
roof of each leased hotel;
- fund periodic improvements (in addition to maintenance of structural
elements) to the buildings and grounds comprising the leased hotels; and
- fund the periodic repair, replacement and refurbishment of furniture,
fixtures and equipment in the leased hotels, when and as required to meet
the requirements of the applicable franchise licenses.
We are required to establish and maintain a reserve in an amount equal to
4% of hotel room and suite revenues, on a cumulative basis. Our obligation is
not limited to the amount in such reserve. Otherwise, the DJONT lessee must, at
its expense, maintain the leased hotels in good order and repair, except for
ordinary wear and tear, and make nonstructural repairs, whether foreseen or
unforeseen, ordinary or extraordinary, which may be necessary and appropriate to
keep the leased hotels in good order and repair.
Insurance and Property Taxes. We pay real estate and personal property
taxes and property insurance premiums on the leased hotels (except to the extent
that personal property associated with the leased hotels is owned by the DJONT
lessee). The DJONT lessee pays the cost of all liability insurance on the leased
hotels, which includes extended coverage, comprehensive general public
liability, workers' compensation and other insurance appropriate and customary
for properties similar to the leased hotels.
Indemnification. Each DJONT lessee must indemnify us for certain losses
relating to the leased hotel, including:
- losses related to any accident or injury to person or property at the
leased hotels,
- certain environmental liability, taxes and assessments (other than real
estate and personal property taxes and any income taxes of the Company on
income attributable to the leased hotels),
- the sale or consumption of alcoholic beverages, or
- any breach of the DJONT Leases by the DJONT lessee.
Other Lease Covenants. Each DJONT lessee has agreed to maintain a ratio of
total debt to consolidated net worth of less than or equal to 50%, exclusive of
capitalized leases and debt subordinated in right to repayment to the rent due
under the DJONT Leases. In addition, each DJONT lessee has agreed to refrain
from paying fees to any of its affiliates.
Breach by Company. Upon notice from the DJONT lessee that we have breached
the lease, we have 30 days to cure the breach or proceed to cure the breach,
which period may be extended in the event of certain specified, unavoidable
delays. If we fail to cure our breach, the DJONT lessee may purchase the leased
hotel from us for a purchase price equal to the leased hotel's then fair market
value.
Bristol Master Hotel Agreement
We are a party with Bristol to an Amended and Restated Master Hotel
Agreement, pursuant to which, among other things, the Bristol lessees are
required to use their reasonable best efforts to permit us to continue to
qualify as a REIT under the Code. The Bristol lessees are required to maintain a
minimum liquid net worth (including not only working capital and other liquid
assets, but also income-producing or readily-marketable assets, and any letters
of credit or other credit enhancements necessary to meet such requirement) at
all times at least
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equal to fifteen percent (15%) of projected annual rent under all of the Bristol
leases during each calendar year. If such minimum liquid net worth is not
maintained and Bristol fails to cure the deficiency, the leases will be in
default, and the Bristol lessees generally will be prohibited from making cash
dividends or other distributions or any other payments to affiliates.
Under the Master Hotel Agreement, the Bristol hotels are treated as a
whole, and the leases are cross-defaulted, for purposes of our remedies upon
default. Upon certain material defaults under one or more leases, we may
terminate the particular lease(s) in default, or all leases to which the
defaulting Bristol lessee is a party, or all (but not less than all) of the
Bristol leases.
The Bristol Percentage Leases
The principal terms of the Percentage Leases with Bristol are summarized
below, although certain terms vary from hotel to hotel.
Term. The Bristol Leases are for initial terms of five to ten years, with
renewal options on the same terms for a total of 15 years. If a Bristol lease
has been extended to 15 years, the Bristol lessee may renew the lease for an
additional five years at then current market rates.
Rent. The Bristol lessees pay a monthly rent equal to the greater of base
rent or percentage rent. The percentage rent is based on specified percentages
of various revenue streams. Those percentages vary from hotel to hotel within
the following ranges:
<TABLE>
<S> <C>
Room and Suite Revenues.... 0% to 10%, up to a revenue breakpoint amount
specified for each hotel, then 60% to 75% above
such breakpoint.
Food & Beverage Revenues... 5% to 25%.
Telephone Revenues......... 5% to 10%.
Other Revenues............. Varying percentages depending on the nature and
source of such revenues.
</TABLE>
The base rent and the thresholds for computing percentage rent under the
Bristol leases are adjusted annually to reflect changes in the Consumer Price
Index. The CPI adjustment for 1999 was 1.6% and for 2000 was 2.2%. The parties
to the Bristol leases will renegotiate the rent in the event of any rebranding,
substantial renovations (other than those agreed upon prior to the execution of
the Bristol leases) or other, future hotel repositioning strategies resulting in
significant disruption of the operations of the leased hotels.
The Bristol lessees have the right to require us to renegotiate the rent
for all the hotels in a particular region if there is an extended, material
reduction in midscale hotel occupancy rates in the United States and in such
region. If we cannot agree on a reduction in rent, the Bristol lessees may
terminate all Bristol leases in the respective region. The Bristol lessee also
may require us to renegotiate the rent for a particular hotel if, as a result of
certain force majeure events, there is an extended, material decline in the
travel or hotel business and a material reduction in the occupancy rate of such
hotel and the hotel's competitive set. If we are unable to agree on a change in
rent, the Bristol lessee may terminate the lease for such hotel.
Termination. We may terminate a Bristol lease for typical defaults such as
failure to pay rent, certain insolvency events and the following reasons, among
others:
- if Bristol fails to satisfy certain performance targets for any one hotel
and all other hotels in the aggregate during any three consecutive years
based on budgeted room revenues, unless Bristol pays us the difference
between the actual rent paid and 80% (or, in certain circumstances, 90%)
of the budgeted rent;
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- if there is a change in control of Bristol (defined as the acquisition of
more than 50% of Bristol's stock by any person or group not approved by
Bristol's board of directors) or the election of a majority of directors
not supported by Bristol's board of directors;
- if there is any breach by the Bristol lessee of the agreements under the
lease that is not cured within certain specified periods;
- if Bristol fails to maintain a minimum liquid net worth or to provide
other credit support for the obligations of the Bristol lessees under the
Bristol leases;
- if a franchisor terminates a franchise license as a result of the Bristol
lessee's default under the franchise agreement; or
- if we sell the hotel to an unaffiliated third party.
If we terminate the lease upon the sale of a hotel and Bristol does not continue
as a manager or lessee of the hotel (or a substitute hotel offered by the
Company), Bristol will be entitled to monthly termination payments during the
remainder of the lease term equal to one-twelfth of 60% of the average monthly
profit and allocable overhead contribution associated with operating the hotel
over the 12 months ending on the termination date.
Indemnification. The Bristol lessee will indemnify us for certain losses
relating to the hotel, including losses related to any accident or injury to
persons or property at the hotel, any breach of the lease by the Bristol lessee
and certain environmental and tax liabilities not assumed by us in connection
with our acquisition of the Bristol hotels. We will indemnify the Bristol lessee
for any breach of the lease by us, for liability for the environmental condition
of the hotel at the time the lease commences and for our acts of gross
negligence or willful misconduct.
Maintenance and Capital Expenditures. The Bristol lessee is responsible
for maintaining the leased hotel in good order and repair and for making all
repairs that do not constitute capital improvements. The Bristol lessee is
generally required to budget and expend an amount equal to at least 4.5% of
gross revenues of the hotel for maintenance and repairs (other than capital
improvements) during each lease year. The Bristol lessee must supply and
maintain the inventory that is necessary to operate the leased hotel. We are
responsible for all hotel capital improvements (including those required by
applicable law or, with certain exceptions, the respective franchise license)
and for maintaining the underground utilities and all hotel improvements,
furniture, fixtures and equipment owned by us to the extent such maintenance
constitutes capital expenditures in accordance with GAAP or the capital
improvements policy agreed to by both us and the Bristol lessee. We must make
available an amount equal to at least 3% of the hotel's gross revenues, on a
cumulative basis, for budgeted or other approved capital expenditures.
Insurance and Property Taxes. We pay all real estate and personal property
taxes and property insurance premiums on the leased hotels, other than with
respect to the Bristol lessee's personal property. The Bristol lessee pays for
all liability insurance on the leased hotels, including extended coverage,
comprehensive general public liability, workers' compensation and other
insurance appropriate and customary for properties similar to the leased hotels.
COMPETITION
The hotel industry is highly competitive. Each of our hotels is located in
a developed area that includes other hotel properties and competes for guests
primarily with other upscale hotels in its immediate vicinity and secondarily
with other full service hotel properties in its geographic market. We believe
that brand recognition, location, the quality of the hotel and services
provided, and price are the principal competitive factors affecting our hotels.
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ENVIRONMENTAL MATTERS
We customarily obtain a Phase I environmental audit from independent
environmental engineers before acquiring a hotel. The principal purpose of a
Phase I audit is to identify indications of potential environmental
contamination for which such hotels may be responsible and, secondarily, to
assess, to a limited extent, the potential for environmental regulatory
compliance liabilities. The Phase I audits of the hotels were designed to meet
the requirements of the then current industry standards governing Phase I
audits, and consistent with those requirements, none of the audits involved
testing of groundwater, soil or air. Accordingly, they do not represent
evaluations of conditions at the studied sites that would be revealed only
through such testing. In addition, their assessment of environmental regulatory
compliance issues was general in scope and was not a detailed determination of
the hotels' complete compliance status. Similarly, the audits did not involve
comprehensive analysis of potential off-site liability. The Phase I audit
reports did not reveal any environmental liability that we believe would have a
material adverse effect on our business, assets or results of operations, nor
are we aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which we are unaware.
We believe that the hotels are in compliance, in all material respects,
with all federal, state and local ordinances and regulations regarding hazardous
or toxic substances and other environmental matters, the violation of which
would have a material adverse effect on us. We have not been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matters in
connection with any of its present or former properties.
TAX STATUS
FelCor elected to be taxed as a REIT under the federal income tax laws,
commencing with its initial taxable year ended December 31, 1994. As a REIT,
FelCor generally is not subject to federal income taxation, at the corporate
level, on its taxable income that is distributed to its shareholders. FelCor
may, however, be subject to certain state and local taxes on its income and
property. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
(90% beginning in 2001) of its taxable income. In connection with FelCor's
election to be taxed as a REIT, FelCor's charter imposes restrictions on the
transfer of shares of its stock. FelCor has adopted the calendar year as its
taxable year.
EMPLOYEES
FelCor LP has no employees. Management functions of FelCor LP are performed
by FelCor as the sole general partner. Mr. Corcoran entered into an employment
agreement with FelCor in 1994 that continues through 2000. None of FelCor's
other executive officers has an employment agreement with FelCor. In addition to
Mr. Corcoran, FelCor had 48 other full-time employees at August 31, 2000. All
persons employed in the day-to-day operation of our hotels are employees of the
lessees, or of the management companies engaged by the lessees, to operate such
hotels and are not our employees.
PERSONNEL AND OFFICE SHARING ARRANGEMENTS
The Company shares executive offices with DJONT and FelCor, Inc. (a private
company controlled by Messrs. Feldman and Corcoran). Each entity bears an
allocated share of the costs thereof, including but not limited to rent,
salaries of certain personnel (other than Mr. Corcoran, who is compensated
solely by FelCor), office supplies, telephones and depreciation of office
furniture, fixtures and equipment. FelCor LP reimburses FelCor for its share of
such allocated
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costs. Such allocations of shared costs are subject to the approval of a
majority of the independent directors of FelCor. During 1999 and the first six
months of 2000, approximately $5.9 million and $3.3 million, respectively
(approximately 89.5% of all allocable expenses) were ultimately borne by FelCor
LP under this arrangement.
LEGAL PROCEEDINGS
There is no litigation pending or known to be threatened against us or
affecting any of our hotels other than claims arising in the ordinary course of
business or which are not considered to be material. Furthermore, most of such
claims are substantially covered by insurance. We do not believe that any claims
known to us (individually or in the aggregate) will have a material adverse
effect on us, without regard to any potential recoveries from insurers or other
third parties.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The board of directors has eleven members, at least seven of whom are not
officers or employees of the Company or the lessees (independent directors). The
board of directors is divided into three classes who serve staggered three-year
terms with the term of each director expiring at the annual meeting of
shareholders held three years after his election.
Executive officers of FelCor constitute all of the managers and executive
officers of the subsidiary guarantors and serve in such capacities without
additional compensation. The directors and executive officers are as follows:
<TABLE>
<CAPTION>
YEAR
FIRST TERM
NAME POSITION ELECTED CLASS EXPIRES
---- -------- ------- --------- -------
<S> <C> <C> <C> <C>
Donald J. McNamara........ Chairman of the Board 1998 Class II 2002
Thomas J. Corcoran, President, Chief Executive Officer 1994 Class II 2002
Jr. .................... and Director
Melinda J. Bush........... Independent Director 2000 Class I 2001
Richard S. Ellwood........ Independent Director 1994 Class III 2000
Richard O. Jacobson....... Independent Director 1994 Class III 2000
Charles A. Ledsinger, Independent Director 1997 Class I 2001
Jr. ....................
Robert H. Lutz, Jr. ...... Independent Director 1998 Class I 2001
Charles N. Mathewson...... Independent Director 1994 Class III 2000
Thomas A. McChristy....... Independent Director 1994 Class II 2002
Richard C. North.......... Director 1998 Class II 2002
Michael D. Rose........... Independent Director 1998 Class I 2001
Lawrence D. Robinson...... Senior Vice President, General 1996 -- --
Counsel and Secretary
William P. Stadler........ Senior Vice President, Director of 1995 -- --
Corporate Acquisitions
Jack Eslick............... Senior Vice President, Director of 1996 -- --
Asset Management
June H. McCutchen......... Senior Vice President, Director of 1995 -- --
Design and Construction
Larry J. Mundy............ Senior Vice President, Director of 1998 -- --
Administration and Business
Initiatives
Andrew J. Welch........... Vice President and Treasurer 1998 -- --
Lester C. Johnson......... Vice President and Controller 1995 -- --
</TABLE>
Donald J. McNamara (age 47). Mr. McNamara was the Chairman of the Board of
Bristol Hotel Company from November 1994 until its merger into FelCor in July
1998. Since the merger, he has served as the Chairman of the Board of FelCor.
Mr. McNamara previously served as a director of FelCor from July 1994 until
November 1997. He is also the Chairman of The Hampstead Group, a private equity
real estate investment company, and is an affiliate of certain partnerships
owning, in the aggregate, approximately 14.1% of FelCor's outstanding common
stock.
Thomas J. Corcoran, Jr. (age 51). Mr. Corcoran is the President and Chief
Executive Officer of FelCor and has served in that capacity since its formation
in 1994. From 1991 to 1994, Mr. Corcoran held the same positions with the
general partner of the partnerships that were merged into FelCor at its
formation. From October 1990 to December 1991, he served as the Chairman,
President and Chief Executive Officer of Fiesta Foods, Inc., a manufacturer of
tortilla chips and taco shells. From 1979 to 1990, Mr. Corcoran held various
positions with ShowBiz Pizza Time, Inc. (now CEC Entertainment, Inc.), an
operator and franchisor of family entertainment center/pizza restaurants, and
with Integra -- A Hotel and Restaurant Company
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(formerly Brock Hotel Corporation). He served as the President and Chief
Executive Officer of Integra from 1986 to 1990.
Melinda J. Bush (age 60). Mrs. Bush was elected as a director of FelCor in
May 2000. From more than five years ago until September 1996, she was Executive
Vice President of Reed Elsevier's Reed Travel Group/Hotel & Travel Index, which
was engaged in hotel industry marketing and publishing activities on a global
basis. Since that time, she has served as the Executive Vice President,
Editorial and Publishing Director of Premier Hotels & Resorts,
www.premierhotels.com, a division of Advanstar Communications. Mrs. Bush has
more than 20 years experience in the hospitality industry, and is also a
director and trustee of the American Hotel Foundation. She has honorary degrees
from Cornell Hotel School and Johnson & Wales Universities and carries the CHA
(Certified Hotel Administrator) designation awarded by the industry to hotel
operators and general managers. She was also named Woman of the Year in Travel
by the Travel Industry of America and is the recipient of several other industry
awards for her achievements in the industry.
Richard S. Ellwood (age 69). Mr. Ellwood, a director of FelCor since its
formation in 1994, is the founder and President of R.S. Ellwood & Co., Inc., a
real estate investment banking firm which was organized in 1987. Prior to 1987,
as an investment banker, Mr. Ellwood was elected successively in 1963 a vice
president of Morgan Guaranty Trust Company, in 1968 a general partner of White
Weld & Co., in 1978 a managing director of Warburg Paribas Becker, Incorporated
and in 1984 a managing director and senior banker of Merrill Lynch Capital
Markets. Mr. Ellwood has extensive experience in hotel financing. He was a
founder of Hotel Investors Trust, a REIT, and served as a trustee from 1970
until its merger with another REIT in 1987. He is currently a director of
Apartment Investment and Management Company and Florida East Coast Industries,
Inc.
Richard O. Jacobson (age 64). Mr. Jacobson has served as a director of
FelCor since its formation in 1994 and is the Chairman of the Board of Jacobson
Warehouse Company, Inc., a privately held warehouse company with facilities in
17 locations in eight states, which Mr. Jacobson founded 31 years ago. He is
also Chairman of the Board of Jacobson Transportation Company, Inc., a truckload
common carrier with authority to operate in the United States (48 states) and
Canada. Mr. Jacobson is a member of the boards of directors of Atrion
Corporation, Firstar Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and
Heartland Express, Inc.
Charles A. Ledsinger, Jr. (age 50). Mr. Ledsinger has served as a director
of FelCor since November 1997. Mr. Ledsinger became the President and Chief
Executive Officer of Choice Hotels International in August 1998. Prior to that
time, Mr. Ledsinger served as Senior Vice President and Chief Financial Officer
of St. Joe Corporation from May 1997 until his election as President and Chief
Operating Officer of that corporation in February 1998. From June 1995 until May
1997, Mr. Ledsinger was Senior Vice President and Chief Financial Officer of
Harrah's Entertainment, Inc. For more than three years prior to that, Mr.
Ledsinger served as Senior Vice President and Chief Financial Officer of The
Promus Companies Incorporated, the former parent of Harrah's Entertainment, Inc.
He is also a director of Choice Hotels International, TBC Corporation and
Friendly Ice Cream Corporation. He is a member and a past chairman of the Real
Estate Financial Advisory Council of the American Hotel and Motel Association.
Robert H. Lutz, Jr. (age 51). Mr. Lutz served as a director of Bristol
from December 1995 until its merger into FelCor in July 1998, and has served as
a director of FelCor since that time. Since 1994, Mr. Lutz has been the Chairman
and Chief Executive Officer, and is a member of the executive committee, of
Amresco, Inc., a financial services company. From 1991 to 1994, Mr. Lutz served
as President and Chief Operating Officer of Balcor/Allegiance Realty Group, a
subsidiary of the American Express Company engaged in real estate ownership and
management.
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Charles N. Mathewson (age 72). Mr. Mathewson has served as a director of
FelCor since its formation in 1994. Additionally, Mr. Mathewson has served, for
more than the past five years, in various positions with International Game
Technology (IGT), a company engaged in the design and manufacture of
microprocessor based gaming products and gaming monitoring systems. Since
February 1988, he has served as the Chairman of the Board of IGT. He has served
as a director of IGT since December 1985, as President from December 1986 to
February 1988, and as Chief Executive Officer from December 1986 until June 1993
and from February 1996 until the present. Mr. Mathewson is also a member of the
board of directors of Baron Asset Fund.
Thomas A. McChristy (age 74). Mr. McChristy has served as a director of
FelCor since its formation in 1994. He was the President of T.A. McChristy Co.,
Inc., a real estate investment company from 1957 to 1996. Mr. McChristy also
served as the president and Chief Operating Officer of Syntech International,
Inc., a lottery systems and equipment manufacturing company, from 1986 to 1988
and as its Chief Executive Officer from 1989 to 1992.
Richard C. North (age 50). Mr. North served as a director of Bristol from
1997 until its merger into FelCor in July 1998, and has served as a director of
FelCor since that time. Mr. North has been the Group Finance Director of Bass
plc since 1994. Bass plc is the parent of Bass Hotels & Resorts, Inc., which
operates or franchises more than 2,700 hotels in more than 75 countries under
various brands, including Crowne Plaza and Holiday Inn. Prior to 1994, Mr. North
served as the Group Finance Director of The Burton Group.
Michael D. Rose (age 58). Mr. Rose has served as a director of FelCor
since July 1998. He served as the Chairman of the Board of Promus from April
1995 through December 1997 and, thereafter, as a director until December 1998.
Mr. Rose served as Chairman of the Board of Harrah's Entertainment Inc. from
June 1995 until his retirement as of December 31, 1996. He also served as
Chairman of the Board of The Promus Companies Incorporated from November 1989
through June 1995 and as Chief Executive Officer of that company from November
1989 to April 1994. Mr. Rose is also a director of Ashland, Inc., First
Tennessee National Corporation, General Mills, Inc., Stein Mart, Inc.,
Resortquest International, Inc. and Darden Restaurants, Inc.
Lawrence D. Robinson (age 57). Mr. Robinson has served as the Senior Vice
President, General Counsel and Secretary of FelCor since May 1996. From 1972 to
1989, Mr. Robinson was a partner in the Kansas City-based law firm of Stinson,
Mag & Fizzell, for which he founded and managed a Dallas, Texas office from 1982
to 1989. From 1989 through April 1996, Mr. Robinson was a partner in the
Houston-based law firm of Bracewell & Patterson, L.L.P., where he served as the
managing partner of its Dallas office until 1992, as the head of that office's
corporate and securities law section and as chairman of its firmwide hospitality
group.
William P. Stadler (age 46). Mr. Stadler began his employment with FelCor
in July 1995 as Vice President, Director of Acquisition and Development. On
January 14, 1998, Mr. Stadler was promoted to Senior Vice President, Director of
Corporate Acquisitions. Mr. Stadler has more than 20 years of experience in
hotel acquisition and development, having served as Vice President Development
for Coastal Hotel Group from 1994 until he joined FelCor in 1995, as Vice
President-Development for Embassy Suites, Inc. from 1992 to 1994, as Senior Vice
President-Development for Landmark Hotels, Inc. from 1989 to 1991 and as Vice
President-Development for Marriott Corporation from 1985 to 1989.
Jack Eslick (age 49). Mr. Eslick joined FelCor in April 1996 as its Vice
President, Director of Asset Management. He was named Senior Vice President,
Director of Asset Management in 1998. Mr. Eslick has more than 20 years
experience in hotel operations. From April 1991 until he joined FelCor, Mr.
Eslick served as Vice President of Operations of Promus, where he had direct
responsibility for all operations in a region that grew from 14 hotels to 26
hotels. Prior to
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April 1991, he served in various capacities with Holiday Inns, Inc., including
serving as general manager of various hotels and as a Regional Director of
Operations.
June H. McCutchen (age 45). Ms. McCutchen joined FelCor in October 1995 as
Vice President, Director of Design and Construction, and was named Senior Vice
President, Director of Design and Construction in 1998. Prior to her engagement
by FelCor, she was an Account Executive for Hospitality Restoration & Builders,
Inc. From 1992 to 1994 she was Project Manager for American General Hospitality,
Inc. where she managed all capital improvement work for more than 35 properties.
Prior to 1992, Ms. McCutchen was Project Manager for Hilton Hotels, Inc. from
1987 to 1992, and prior to 1987, she served as design coordinator and purchasing
manager for Embassy Suites, Inc.
Larry J. Mundy (age 50). Mr. Mundy joined FelCor in January 1998 and is
the Senior Vice President, Director of Administration and Business Initiatives.
From 1995 until he joined FelCor, he was Vice President of Franchise Development
for Motel 6. From 1987 to 1995, he was Vice President of Development in the
South/Southeast for Hilton Hotels and prior to 1987 he served as corporate
counsel for Residence Inns and Embassy Suites.
Andrew J. Welch (age 38). Mr. Welch joined FelCor in July 1998 and is the
Company's Vice President and Treasurer. Prior to joining FelCor, Mr. Welch had
served as Vice President and Treasurer of Bristol Hotel Company from August
1997. Prior to joining Bristol, Mr. Welch was responsible for originating
investment banking and corporate banking business for Bank of America, N.A.,
from October 1991 to August 1997, Citibank, N.A., from January 1990 to October
1991, and NationsBank, N.A., from May 1984 to January 1990.
Lester C. Johnson (age 48). Mr. Johnson joined FelCor in September 1995 as
its Vice President and Controller. Prior to joining FelCor, Mr. Johnson held
various positions with Integra -- A Hotel and Restaurant Company and Show Biz
Pizza Time, Inc. (now CEC Entertainment, Inc.) from 1981 to 1995. He served as
the Vice President and Controller of Integra from 1991 to 1995.
In addition to the executive officers, Hervey A. Feldman, the founding
Chairman of the Board of FelCor, serves as the Chairman Emeritus of FelCor, a
position he has held since his retirement from the board of directors in July
1998. In his capacity as Chairman Emeritus, Mr. Feldman is an honorary
non-voting member of the board of directors who is entitled to attend meetings
of the board, although his presence or absence from a meeting is not considered
for purposes of determining a quorum of the board of directors. We expect that
Mr. Feldman will be available from time to time to consult with the board of
directors and senior management on significant strategic and other corporate
matters. Mr. Feldman spent over 25 years in the hotel industry, including
serving in various management positions with Embassy Suites, Inc., Brock Hotel
Corporation, Holiday Inns, Inc. and Brock Residence Inns, Inc.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table shows how much FelCor common stock, Series A preferred
stock and Series B preferred stock was beneficially owned on August 31, 2000, by
certain executive officers, each director and all directors and those executive
officers as a group. Unless otherwise indicated, each person owns directly the
shares shown after his name in the following table.
<TABLE>
<CAPTION>
AMOUNT AND AMOUNT AND
AMOUNT AND NATURE OF NATURE OF
NATURE OF BENEFICIAL BENEFICIAL
BENEFICIAL PERCENT OWNERSHIP OF PERCENT OWNERSHIP OF PERCENT
NAME OF OWNERSHIP OF OF SERIES A OF SERIES B OF
BENEFICIAL OWNER COMMON STOCK CLASS(1) PREFERRED STOCK CLASS(1) PREFERRED STOCK CLASS(1)
---------------- ------------ -------- --------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Melinda J. Bush................. 1,000(2) * 0 * 0 *
Thomas J. Corcoran, Jr. ........ 772,379(3) 1.3% 3,000 * 800 *
Richard S. Ellwood.............. 14,300(4) * 0 * 0 *
Richard O. Jacobson............. 42,058 * 0 * 0 *
Charles A. Ledsinger, Jr. ...... 3,975 * 0 * 0 *
Robert H. Lutz, Jr. ............ 26,614(5) * 0 * 0 *
Charles N. Mathewson............ 1,351,993(6) 2.5% 170,000(15) 2.8% 71,600(15) 1.2%
Thomas A. McChristy............. 144,973(7) * 0 * 0 *
Donald J. McNamara.............. 9,639,178(8) 17.7% 0 * 0 *
Richard C. North................ 0 * 0 * 0 *
Michael D. Rose................. 68,425(9) * 0 * 10,000(16) *
Jack Eslick..................... 71,268(10) * 0 * 0 *
Lawrence D. Robinson............ 138,032(11) * 0 * 1,267(17) *
William P. Stadler.............. 68,090(12) * 100 * 0 *
June H. McCutchen............... 50,860(13) * 0 * 0 *
All executive officers and
directors as a group (18
persons)...................... 12,260,524(14) 22.5% 173,100 2.9% 82,067 1.4%
</TABLE>
------------
* Represents less than 1% of the outstanding shares of such class.
(1) Based upon 54,393,790 shares of common stock, 6,030,600 shares of Series A
preferred stock and 5,750,000 Depository Shares representing 57,500 shares
of Series B preferred stock outstanding as of August 31, 2000.
(2) Represents shares owned by her IRA.
(3) Includes 294,915 shares that FelCor, Inc. has the right to receive upon
redemption of FelCor LP Units. Mr. Corcoran is a 50% shareholder and
director of FelCor, Inc. and may be deemed to beneficially own all of the
units owned by FelCor, Inc. Also includes (1) an aggregate of 63,600 shares
issued pursuant to stock grants (9,000 in February 1995, 9,000 in December
1995, 15,000 in February 1997 and 30,600 in April 2000), which vest over a
five-year period from the date of grant at 20% annually and of which 25,200
shares are fully vested, (2) 364,257 shares issuable pursuant to stock
options that are currently exercisable or exercisable within 60 days, (3)
2,325 shares issuable upon conversion of 3,000 shares of Series A preferred
stock, (4) 4,285 shares owned by his children, (5) 100 shares owned by his
spouse, (6) 500 shares owned by Corcoran Investments, L.L.C., a limited
liability company wholly-owned by him, and (7) 1,995 shares owned by his
IRA.
(4) Includes (1) 3,000 shares held by trusts of which Mr. Ellwood is a
beneficiary and trustee and (2) 1,500 shares held by R. S. Ellwood & Co.,
Inc., of which Mr. Ellwood is the sole shareholder.
(5) Includes (1) 15,414 shares issuable pursuant to currently exercisable stock
options, and (2) 2,500 shares owned by Mr. Lutz's spouse.
(6) Includes 540,009 shares representing Mr. Mathewson's pro rata interest in
partnerships having the right to receive common stock upon redemption of
FelCor LP units. Also includes 131,784 shares issuable upon conversion of
170,000 shares of Series A preferred stock held by the Charles N. Mathewson
Trust.
(7) Includes (1) 101,503 shares held by the T. A. McChristy Living Trust, (2)
4,200 shares held by his spouse's trust, (3) 1,800 shares held by his
spouse's IRA, and (4) 3,000 shares held by his IRA.
(8) Includes 9,630,878 shares held by United/Harvey Investor I, L.P.;
United/Harvey Investors II, L.P.; United/ Harvey Investors III, L.P.;
United/Harvey Investors IV, L.P.; and United/Harvey Investors V, L.P.
("Partnerships"). Mr. McNamara is the sole shareholder and director of
Hampstead Associates, Inc., which is the managing general partner of HH
GenPar Partners. HH GenPar Partners is the managing general partner of
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Hampstead GenPar, L.P., which is the general partner of each of the
Partnerships. Mr. McNamara disclaims beneficial ownership of the shares
held by the Partnerships, except to the extent of his pecuniary interest
therein.
(9) Includes (1) 21,600 shares owned by a trust of which Mr Rose is the
trustee, (2) 43,275 shares owned by a corporation controlled by Mr. Rose,
(3) 750 shares owned by Mr. Rose's spouse, and (4) 2,800 shares credited to
his account in the FelCor Deferred Compensation Plan.
(10) Includes (1) 44,768 shares issuable pursuant to currently exercisable stock
options and (2) 25,500 issued pursuant to stock grants which vest over a
five-year period from the date of grant at 20% annually and of which 2,000
shares are fully vested.
(11) Includes (1) 38,000 shares issued pursuant to stock grants, which shares
vest over a five-year period from the date of grant at 20% annually, of
which 11,100 shares are fully vested, (2) 95,744 shares issuable pursuant
to stock options exercisable within 60 days, (3) 2,288 shares held by his
IRA, and (4) 2,000 shares credited to his account in the FelCor Deferred
Compensation Plan.
(12) Includes (1) 26,000 shares issued pursuant to stock grants, which shares
vest over a five-year period from the date of grant at 20% annually, of
which 2,500 shares are fully vested, (2) 42,013 shares issuable pursuant to
stock options exercisable within 60 days, and (3) 77 shares issuable upon
conversion of 100 shares of Series A preferred stock.
(13) Includes (1) 23,500 shares issued pursuant to a stock grant which vests
over a five-year period from the date of grant at 20% annually, none of
which shares are currently vested and (2) 27,360 shares issuable pursuant
to stock options exercisable within 60 days.
(14) See notes 2 through 11.
(15) Represents shares held by the Charles N. Mathewson Trust.
(16) Represents shares owned by a corporation controlled by Mr. Rose.
(17) Represents shares owned by his IRA.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We leased all but two of the 188 hotels owned at August 31, 2000 directly
to, or to subsidiaries of, either DJONT (86 hotels) or Bristol (100 hotels)
under Percentage Leases. Hervey A. Feldman and Thomas J. Corcoran, Jr. own all
of the voting common equity interests (50% common equity interest) in, and serve
as officers and managers of, DJONT. The remaining 50% non-voting common equity
interest in DJONT is owned by entities owned by the children of Charles N.
Mathewson. Bristol is a subsidiary of Bass plc. Subsidiaries of Bass plc own
FelCor common stock and FelCor units aggregating approximately 15.5% of the
outstanding common stock and units of the Company. Richard C. North, a director
of FelCor, is the Group Finance Director of Bass plc.
On July 21, 2000, FelCor's independent directors approved the acquisition
of 100% of DJONT effective January 1, 2001. The purchase price is expected to be
approximately 417,000 FelCor LP units (currently valued at $9.3 million based
upon the $22.375 closing share price on August 31, 2000). No binding agreements
have been entered into for this acquisition and we cannot assure you that we
will successfully complete this transaction.
THE PERCENTAGE LEASES
The Percentage Leases generally have initial terms of five to 15 years and
provide for the payment by the lessees to the FelCor subsidiary that owns the
property a minimum base rent or, if greater, rent measured as a percentage of
room or suite revenue and certain other hotel revenues. The lessees are entitled
to all profits from the operation of the hotels leased by them, after the
payment of rent and the operating, management and certain other expenses of the
hotels. During 1999, lease rent earned from DJONT was approximately $256.1
million and lease rent earned from Bristol was approximately $234.8 million. For
the six months ended June 30, 2000, lease rent earned from DJONT was
approximately $142.7 million and lease rent earned from Bristol was
approximately $119.2 million.
SHARING OF OFFICES AND EMPLOYEES
FelCor shares its executive offices and certain employees with DJONT and
another entity controlled by Messrs. Feldman and Corcoran, and each company
bears its share of the costs thereof, including an allocated portion of the
rent, salaries of certain personnel (other than Mr. Corcoran), office supplies,
telephones and depreciation of office furniture, fixtures and equipment. The
allocation of shared expenses to FelCor must be approved by a majority of the
independent directors of FelCor. During 1999 and the six months ended June 30,
2000, FelCor paid approximately $5.9 million and $3.3 million, respectively
(approximately 89.5% of all allocable expenses) under this arrangement. Mr.
Corcoran's salary is paid solely by FelCor, and he receives no salary from
either of the other entities. Mr. Corcoran is the President, Chief Executive
Officer and a director of FelCor and also serves as a director (or manager) and
the President of each of such other entities.
EMPLOYMENT ARRANGEMENTS
We have entered into an employment agreement with Mr. Corcoran that expires
on December 31, 2000, and automatically renews for successive one-year terms
unless otherwise terminated. Under this agreement, Mr. Corcoran serves as the
President and Chief Executive Officer of FelCor. The agreement provides for a
salary of not less than $120,000 per year and a comprehensive medical plan for
Mr. Corcoran and his dependents. None of the other officers of FelCor has an
employment agreement.
FelCor has entered into change in control and severance agreements with
each of its executive officers and certain other key employees. Each of these
agreements expires on December 31, 2000, and automatically renews for successive
one-year terms unless otherwise
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terminated. Under the agreements, each covered employee agrees to remain in the
employ of FelCor until the earlier of one year following the "potential change
in control" or six months following an actual "change in control." "Change in
control" is defined to include (1) the acquisition of 35% or more of FelCor's
voting stock by any person or group, (2) a change in a majority of the board of
directors not approved by existing directors, (3) a merger in which existing
shareholders of FelCor would own less than 65% of the surviving corporation's
voting stock (but excluding transactions which are the functional equivalent of
an asset acquisition by FelCor and in which there is no change in its senior
management), and (4) the adoption of a plan for the liquidation, sale or other
disposition (excluding leases in the ordinary course of business) of all or
substantially all of FelCor's assets.
Following a "change in control," if a covered employee's employment is
terminated by FelCor other than for disability, retirement, or "cause" (or by
the employee for "good reason"), then the employee will be entitled to (1) the
immediate vesting of all stock options, awards of restricted stock and other
benefits previously awarded or credited to his account and (2) a lump sum
severance payment of between 0.5 and 2.99 times the employee's average total
annual compensation over the past three years. FelCor will be required to
"gross-up" the severance payment to cover excise taxes on the benefits, thereby
providing such benefits to the employee on a net basis, after payment of any
such excise taxes.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Our debt consists primarily of the Old Notes, the existing 7 3/8% and
7 5/8% senior notes due 2004 and 2007, amounts borrowed under our line of
credit, and nonrecourse mortgage debt. As of June 30, 2000, after giving effect
to the private offering of the Old Notes and the application of the net
proceeds, and share repurchases through August 31, 2000, our total consolidated
debt would have been approximately $1.9 billion, including the following:
- $400 million under the Old Notes,
- $300 million under the existing 7 3/8% and 7 5/8% senior notes,
- $406 million under our line of credit,
- $789 million under nonrecourse mortgage and lease debt, and
- $11 million under other debt.
Line of Credit. On August 1, 2000, we entered into an amended and restated
credit agreement, pursuant to which we reduced our line of credit to $600
million. The Chase Manhattan Bank serves as administrative agent under the line
of credit. The line of credit has a term of three years ending August 1, 2003,
provided that the maturity date may be extended to March 31, 2004, subject to
certain conditions. The line of credit is guaranteed by certain of our
subsidiaries, which are also guarantors of the existing 7 3/8% and 7 5/8% senior
notes and the Old Notes, and which will be guarantors of the New Notes.
Borrowings under the line of credit bear interest, at our option,
- at a base rate ("Base Rate") equal to the higher of the base rate
announced from time to time by The Chase Manhattan Bank or 0.5% plus the
Federal funds rate, in either case plus an applicable margin of 0% to
1.000%, or
- at a Eurodollar rate ("Eurodollar Rate") based upon the 1, 2, 3, 6, 9 or
12-month LIBOR plus an applicable margin of 0.875% to 2.500%.
The applicable margin varies depending upon our long-term senior unsecured
actual debt rating or leverage ratio. At August 31, 2000, the margin was 0.30%
in the case of Base Rate borrowings and 2.00% in the case of Eurodollar Rate
borrowings. At August 31, 2000, borrowings outstanding under our line of credit
aggregated $410 million and bore interest at a weighted average interest rate of
8.62% per annum.
Our line of credit requires FelCor and FelCor LP to comply with certain
financial tests and to maintain certain financial ratios. We must maintain: (1)
a ratio of Unencumbered NOI to Unsecured Interest Expense for the four most
recent quarters of not less than 2.25 to 1.0; (2) a ratio of Adjusted EBITDA to
Fixed Charges for the four most recent quarters of not less than 1.75 to 1.0;
and (3) Tangible Net Worth of not less than the sum of (a) $1.5 billion plus (b)
50% of the aggregate net proceeds received by us after June 30, 2000 in
connection with any offering of stock or stock equivalents. We must ensure that
at the end of each fiscal quarter at least 50% of the aggregate Adjusted NOI
generated by all hotels during the preceding four fiscal quarters shall be
generated by hotels wholly owned or leased by us or our wholly owned
subsidiaries; provided that, for hotels owned or leased for less than four
fiscal quarters only the Adjusted NOI generated by such hotels since the date of
acquisition of such hotel shall be included in calculating such aggregate
Adjusted NOI. In addition, we shall not, during each fiscal quarter on a
consolidated basis permit (a) Total Indebtedness to exceed 55% of Total Value or
(b) Total Secured Indebtedness to exceed 25% of Total Value or (c) Recourse
Secured Indebtedness to exceed the lesser of 7.5% of Total Value and $200
million.
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For purposes of the financial covenants in our line of credit, the
following terms have the definitions set forth below:
"Adjusted EBITDA" means, for any person, EBITDA less the aggregate FF&E
Reserves for such period in respect of each hotel owned or leased by such person
and its subsidiaries.
"Adjusted NOI" means, with respect to any hotel, for any period, the net
operating income for such hotel for such period less the FF&E Reserve for such
hotel.
"EBITDA" means, for any person for any period, the net income (loss) for
such period plus (a) the sum of the following amounts: (1) depreciation expense,
(2) amortization expense and other non-cash charges, (3) interest expense, (4)
income tax expense, (5) extraordinary losses (and other losses on certain asset
sales not otherwise included in extraordinary losses determined on a
consolidated basis in accordance with GAAP) and (6) minority interests
attributable to FelCor LP's partnership units, less (b) the sum of the following
amounts: (1) extraordinary gains (and in the case of FelCor and FelCor LP, other
gains on certain asset sales not otherwise included in extraordinary gains), (2)
the applicable share of net income (loss) of such person's unconsolidated
entities and (3) cash payments made with respect to any non-cash charge that was
added back to net operating income to determine EBITDA for any prior period;
plus (c) such person's pro rata share of EBITDA of such person's unconsolidated
entities, but excluding dividends on qualified preferred stock).
"FF&E Reserve" means, for any person (or with respect to any hotel) for any
period, a reserve equal to 4% of room or suite revenues from any hotel owned by
such person for such period plus for any person, such person's pro rata share of
any FF&E Reserve for any hotel owned by such person's unconsolidated entities.
"Fixed Charges" means, for any person for any period, (a) Gross Interest
Expense for such period plus (b) the aggregate amount of scheduled principal
payments on the Total Indebtedness of such person (excluding optional
prepayments and scheduled principal payments in respect of any such Total
Indebtedness which is payable in a single installment at final maturity)
required to be made during such period, plus (c) dividends required to be paid
by such person (and its consolidated subsidiaries) in connection with preferred
stock issued by such person (including such person's pro rata share of dividends
required to be paid by such person's unconsolidated entities but excluding
dividends on qualified preferred stock).
"Gross Interest Expense" means, for any person for any period, the sum of
(a) the total interest expense in respect of all Indebtedness (excluding all
contingent obligations) of such person and its subsidiaries for such period
determined on a consolidated basis in conformity with GAAP, plus capitalized
interest of such person and its subsidiaries plus (b) such person's pro rata
share of Gross Interest Expense of such person's unconsolidated entities.
"Indebtedness" of any person means, without duplication, the principal
amount of (1) all indebtedness of such person for borrowed money (including,
without limitation, reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured) or for the deferred purchase price of property or services, (2) all
obligations of such person evidenced by notes, bonds, debentures or similar
instruments, (3) all indebtedness of such person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such person, (4) all capitalized lease obligations of such person,
(5) all contingent obligations of such person, (6) all obligations of such
person to purchase, redeem, retire, defease or otherwise acquire for value any
stock or stock equivalents of such person, valued, in the case of mandatorily
redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (7) all Indebtedness
referred to in clauses (1), (2), (3), (4), (5) or (6) above secured by any lien
upon or in property owned by such person, even
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though such person has not assumed or become liable for the payment of such
Indebtedness and (8) all liabilities of such person under Title IV of ERISA.
"Recourse Secured Indebtedness" of any person means the sum of the
following: (A) all Indebtedness of such person and its subsidiaries determined
on a consolidated basis in conformity with GAAP which (x) is secured by a lien
and (y) recourse for payment is not limited to the specific assets encumbered by
such lien (provided that certain recourse liability that is limited to (1) any
subsidiary or unconsolidated entity of FelCor or FelCor LP formed specifically
for the limited purpose of owning the assets which secure the Indebtedness which
do not exceed 65% of the value of the assets owned by such subsidiary or
unconsolidated entity or (2) certain customary exclusions from non-recourse
provisions in non-recourse financings of real estate, shall not cause such
Indebtedness to be characterized as Recourse Secured Indebtedness), plus (B)
such person's pro rata share of Recourse Secured Indebtedness of such person's
unconsolidated entities.
"Tangible Net Worth" means, with respect to FelCor or FelCor LP at any
date, (a) the sum of (1) the total shareholders' equity of FelCor and (2) the
book value of all partnership interests in FelCor LP owned by persons other than
FelCor; minus (b) the sum of all intangible assets of FelCor, each as shown on
the consolidated balance sheet of FelCor as of such date.
"Total Indebtedness" of any person means the sum of the following (without
duplication): (a) all Indebtedness of such person and its subsidiaries
determined on a consolidated basis in accordance with GAAP, plus (b) such
person's pro rata share of Indebtedness of such person's unconsolidated
entities.
"Total Secured Indebtedness" of any person means any Total Indebtedness of
such person for which the obligations thereunder are secured by a pledge of or
other encumbrance (other than a permitted lien) on any assets of such person or
its subsidiaries or unconsolidated entities.
"Total Value" means the sum of: (A) for hotels owned or leased (including
newly acquired hotels and hotels to be immediately acquired using the proceeds
of any loans under our credit facilities) other than hotels described in clause
B below, Adjusted NOI on a consolidated basis from such hotels for the preceding
four fiscal quarters divided by ten percent; plus (B) for hotels owned or leased
(x) for less than four fiscal quarters and for which FelCor or FelCor LP (or any
subsidiary or unconsolidated entity) does not have, or is not able to reasonably
obtain, trailing four quarter audited financial information or (y) which FelCor
or FelCor LP has designated as a refurbishment hotel, in each such case,
generally 95% of FelCor's or FelCor LP's investment in such hotel; plus (C) the
sum of $15,000,000, being the agreed aggregate sum of FelCor and FelCor LP's
investment at cost in certain properties; plus (D) unencumbered cash or cash
equivalents held by FelCor or FelCor LP and their subsidiaries (determined on a
consolidated basis in accordance with GAAP); plus FelCor's or FelCor LP's pro
rata share of unencumbered cash or cash equivalent held by their unconsolidated
entities; all as subject to adjustment in certain limited cases.
"Unencumbered NOI" means Adjusted NOI from each hotel that is not
encumbered in any way, provided, that only FelCor's or FelCor LP's pro rata
interest in a hotel owned by a joint venture shall be included in Unencumbered
NOI and in no event shall more than 25% of Unencumbered NOI be attributable to
unencumbered leased hotels.
"Unsecured Interest Expense" means, for any person for any period, the
greater of (1) the sum of (a) the total interest expense in respect of all
Unsecured Indebtedness of such person (excluding up to $3 million of certain
non-cash amortization expense) and its subsidiaries for such period determined
on a consolidated basis in conformity with GAAP, plus capitalized interest of
such person and its subsidiaries in respect of unsecured Indebtedness, plus (b)
such person's pro rata share of Unsecured Interest Expense of such person's
unconsoli-
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dated entities and (2) 7.5% of the sum of (a) the average outstanding balance of
all unsecured Indebtedness of such person and its subsidiaries for such period
determined on a consolidated basis in conformity with GAAP, plus (b) such
person's pro rata share of Unsecured Indebtedness of such person's
unconsolidated entities for such period.
Failure to satisfy any of the financial covenants would constitute an Event
of Default, notwithstanding our ability to meet our debt service obligations. An
Event of Default also includes without limitation, a cross-default to other
indebtedness, bankruptcy and a change of control.
In addition to the financial covenants, our line of credit includes certain
other affirmative and negative covenants, including: (a) a requirement that
substantially all hotels that are leased or owned by FelCor or FelCor LP be (1)
leased to an operating lessee pursuant to an operating lease, (2) managed
pursuant to a management agreement and (3) operated pursuant to and with the
benefit of a license; (b) a restriction on the creation or acquisition of any
direct or indirect wholly owned subsidiary, other than certain specified special
purpose and other subsidiaries, (1) having assets with a value in excess of 2%
of Total Value unless such subsidiary becomes a guarantor under our credit
facilities, and (2) having assets with a value less than 2% of Total Value
unless the organizational documents of such subsidiary provide for certain
limitations on its ability to incur debt; (c) restrictions on the declaration or
payment of dividends or other distribution of assets, properties, cash, rights,
obligations or securities in respect of any stock or stock equivalents; (d)
restrictions on the sale of assets or merger of the Company or its subsidiaries
and (e) restrictions on construction of new hotels or investments in budget
hotels.
Existing Senior Notes. In October 1997, we issued $175,000,000 aggregate
principal amount of 7 3/8% senior notes due 2004 and $125,000,000 aggregate
principal amount of 7 5/8% senior notes due 2007. The existing senior notes were
issued under an indenture containing covenants and other terms and conditions
substantially similar to those governing the Old Notes; however, the indenture
governing the Old Notes contains additional restrictions upon the redemption of
the Notes and the repurchase of capital stock. See "Description of the Notes and
Guarantees."
Interest Rate Swaps. To manage the relative mix of its debt between fixed
and variable rate instruments, the Company has entered into interest rate swap
agreements with six financial institutions. These interest rate swap agreements
modify a portion of the interest characteristics of the Company's outstanding
debt under its line of credit and a term loan that was repaid from the proceeds
of the private offering of the Old Notes, without an exchange of the underlying
principal amount and effectively convert variable rate debt to a fixed rate. The
fixed rates to be paid, the effective fixed rate, and the variable rate to be
received by the Company at June 30, 2000, are summarized in the following table:
<TABLE>
<CAPTION>
EFFECTIVE
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 6/30/00 MATURITY
--------------- ------------ ---------- ------------- ---------
<S> <C> <C> <C> <C>
$ 25 million.................... 5.5575% 7.1825% 8.2663% July 2001
25 million................... 5.5480 7.1730 8.2663 July 2001
75 million................... 5.5550 7.1800 8.2663 July 2001
100 million.................... 5.7955 8.5455 9.3913 July 2003
25 million................... 5.8260 8.5760 9.3913 July 2003
--------------------------------
$250 million
================================
</TABLE>
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The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company, pursuant to the
terms of its interest rate agreement, and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk in that
the counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
who are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
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DESCRIPTION OF THE NEW NOTES AND GUARANTEES
The Old Notes were, and the New Notes will be, issued by FelCor LP under
the Indenture dated September 15, 2000 (the "Indenture") among itself, FelCor,
the Subsidiary Guarantors and SunTrust Bank, as trustee (the "Trustee"). The
terms of the Old Notes and the New Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The New Notes are substantially
identical to the terms and provisions of the Old Notes, except for certain
transfer restrictions and registration rights relating to the Old Notes. The
term "Notes" refers to both the Old Notes and the New Notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. Because this is a
summary, we urge you to read the Indenture and the relevant portions of the
Trust Indenture Act because they, and not this description, define your rights
as holders of the Notes. We have filed copies of the Indenture as an exhibit to
the registration statement which includes this prospectus.
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." For purposes of this section only,
references to FelCor LP and FelCor do not include their respective subsidiaries.
GENERAL
The Notes will be in the aggregate principal amount of $400 million and
will be unsecured senior obligations of FelCor LP. The Notes will mature on
September 15, 2008. The Notes will initially bear yearly interest at 9 1/2% from
September 15, 2000 or from the most recent interest payment date to which
interest has been paid or provided for, payable semiannually to holders of
record at the close of business on the March 1 or the September 1, immediately
preceding the interest payment date on March 15 and September 15 of each year,
commencing March 15, 2001. Notwithstanding anything to the contrary contained
herein, upon the occurrence of, and during the continuance of, a Ratings
Downgrade, the Notes will bear yearly interest at the rate set forth in the
immediately preceding sentence plus 0.5%.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of FelCor
LP in the Borough of Manhattan, the City of New York, which initially will be
the corporate trust office of the trustee c/o Harris Trust of New York, Wall
Street Plaza, 88 Pine Street, 19th Floor, New York, New York 10005, as agent for
the trustee; provided that, at the option of FelCor LP, payment of interest may
be made by check mailed to the holders at their addresses as they appear in the
security register for the Notes.
The Old Notes have been, and the New Notes will be, issued only in fully
registered form, without coupons, in denominations of $1,000 of principal amount
and any integral multiple. See "-- Book-Entry; Delivery and Form." No service
charge will be made for any registration of transfer or exchange of Notes, but
FelCor LP may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with a registration of
transfer.
Subject to the covenants described below under "Covenants" and applicable
law, FelCor LP may issue additional Notes under the Indenture. The Notes and any
additional notes subsequently issued under the Indenture will be treated as a
single class for all purposes under the Indenture.
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GUARANTEES AND SUBSIDIARY GUARANTORS
The Old Notes are, and the New Notes will be, guaranteed on an unsecured
senior basis by FelCor and the Subsidiary Guarantors. At present, the Subsidiary
Guarantors consist of FelCor/ CSS Hotels, L.L.C., FelCor/LAX Hotels, L.L.C.,
FelCor Eight Hotels, L.L.C., FelCor/CSS Holdings, L.P., FelCor/St. Paul
Holdings, L.P., FelCor/LAX Holdings, L.P., FelCor Hotel Asset Company, L.L.C.,
FelCor Nevada Holdings L.L.C., FHAC Nevada Holdings, L.L.C., FHAC Texas
Holdings, L.P., FelCor Omaha Hotel Company, L.L.C., FelCor Country Villa Hotel,
L.L.C., FelCor Moline Hotel, L.L.C., and FelCor Canada Co., each of which is a
guarantor with respect to the Line of Credit and the existing 7 3/8% and 7 5/8%
senior notes. The guarantees are unconditional regardless of the enforceability
of the Notes and the Indenture.
FelCor currently conducts no other business and has no significant assets
other than its general partner interest and an indirect limited partner interest
in FelCor LP. The four Subsidiary Guarantors that are limited partnerships own
directly an aggregate of 27 of the hotels and own general partner interests in a
partnership that owns directly one additional hotel in which FelCor and FelCor
LP have an interest. Four of the Subsidiary Guarantors that are limited
liability companies directly own an aggregate of 59 of the hotels and own direct
or indirect membership interests in other entities that own an aggregate of 27
of the hotels, including 12 hotels that are owned directly by a limited
partnership that is a Subsidiary Guarantor and six hotels that are owned
directly by FelCor Canada Co., another Subsidiary Guarantor. None of the
remaining five Subsidiary Guarantors directly owns any hotel properties or
engages in any business other than the ownership of partnership and membership
interests in other entities. FelCor LP and certain of the Subsidiary Guarantors
own additional subsidiaries, none of which is material to FelCor LP.
Each future Restricted Subsidiary that subsequently guarantees Indebtedness
of FelCor LP or FelCor that ranks equally with or subordinate in right of
payment to the Notes will be required to execute a Subsidiary Guarantee. See
"Limitation on Issuances of Guarantees by Restricted Subsidiaries."
OPTIONAL REDEMPTION
Optional Redemption. Except as described below, FelCor LP will not have
the right to redeem any Notes prior to September 15, 2004. The Notes will be
redeemable at the option of FelCor LP, in whole or in part, at any time, and
from time to time, on and after September 15, 2004, upon not less than 30 days'
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the 12-month
period commencing September 15 of the years indicated below, in each case
together with accrued and unpaid interest thereon to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2004................................................... 104.750
2005................................................... 103.167
2006................................................... 101.583
2007 and thereafter.................................... 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to September 15, 2003, FelCor LP may, at its option, use the
net cash proceeds of one or more Equity Offerings (as defined below) to redeem
up to 35% of the principal amount of the Notes issued under the Indenture at a
redemption price of 109.5% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of redemption; provided that:
(1) at least 65% of the principal amount of Notes issued under the
Indenture remains outstanding immediately after such redemption; and
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<PAGE> 97
(2) FelCor LP makes such redemption not more than 90 days after the
consummation of any such Equity Offering.
"Equity Offering" means a public or private offering of Capital Stock
(other than Disqualified Stock) of FelCor or FelCor LP; provided that, the
proceeds received by FelCor or FelCor LP directly or indirectly from such
offering are not less than $50 million.
SELECTION AND NOTICE OF REDEMPTION
In the event that FelCor LP chooses to redeem less than all of the Notes,
selection of the Notes for redemption will be made by the trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or,
(2) on a pro rata basis, by lot or by such method as the trustee shall
deem fair and appropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of an Equity Offering, the
trustee will select the Notes only on a pro rata basis or on as nearly a pro
rata basis as is practicable (subject to DTC procedures) unless such method is
otherwise prohibited. Notice of redemption will be mailed by first-class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. Unless FelCor LP defaults in the
payment of the redemption price, on and after the redemption date, interest will
cease to accrue on Notes or portions thereof called for redemption.
SINKING FUND
There will be no sinking fund payments for the Notes.
REGISTRATION RIGHTS
FelCor LP and FelCor have agreed with the initial purchasers of the Old
Notes, for the benefit of the holders, that FelCor LP and FelCor will use their
best efforts, at their cost, to file and cause to become effective a
registration statement with respect to a registered exchange offer to exchange
the Old Notes for an issue of notes that will be senior notes of FelCor LP
("Exchange Notes") with terms identical to the notes tendered, including the
guarantee by FelCor and the Subsidiary Guarantors, except that the Exchange
Notes will not have legends restricting transfer. When the SEC declares the
registration statement relating to the exchange offer effective, FelCor LP will
offer the Exchange Notes in return for surrender of the Old Notes. The exchange
offer will remain open for at least 20 business days after the date notice of
the exchange offer is mailed to the holders. For each Old Note surrendered to
FelCor LP under the exchange offer, the holder will receive an Exchange Note of
equal principal amount. Interest on each Exchange Note accrues from the last
interest payment date on which interest was paid on the Old Notes surrendered
or, if no interest has been paid on the Old Notes, from the closing date for the
private offering. In the event that applicable interpretations of the SEC staff
do not permit FelCor LP and FelCor to effect the exchange offer, or under
certain other circumstances, FelCor LP and FelCor will, at their cost, use their
best efforts to cause a shelf registration statement with respect to resales of
the Notes to become effective and to keep such shelf registration statement
effective until the expiration of the time period referred to in Rule 144(k)
under the Securities Act, or until an earlier date when all of the Notes have
been sold under the shelf registration statement. FelCor LP and FelCor shall, in
the event of a shelf registration, provide each holder copies of the prospectus,
notify each holder when the shelf registration statement for the Notes has
become effective and take other actions that are required to permit
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<PAGE> 98
resales of the Notes. A holder that sells its Notes pursuant to the shelf
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with those sales and will be bound by those
provisions of the registration rights agreement that are applicable to that
holder, including certain indemnification obligations.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any holder which is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act, or a broker-dealer who purchased Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of business of the Holder and the
Holder does not have an arrangement or understanding with any person to
participate in the distribution of such New Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." Broker-dealers who acquired Old Notes directly from us
and not as a result of market-making activities or other trading activities may
not rely on the staff's interpretations discussed above or participate in the
Exchange Offer and must comply with the prospectus delivery requirements of the
Securities Act in order to sell the Old Notes.
If the exchange offer is not consummated and a shelf registration statement
is not declared effective by the SEC on or prior to March 14, 2001, the annual
interest rate borne by the Notes will be increased by 0.5% until the exchange
offer is consummated or the SEC declares the shelf registration statement
effective.
If FelCor LP and FelCor effect the exchange offer, FelCor LP and FelCor
will be entitled to close the exchange offer 20 business days after its
commencement; provided that FelCor LP has accepted all Old Notes validly
tendered in accordance with the terms of the exchange offer. Notes not tendered
in the exchange offer will bear interest at the rate set forth on the cover page
of this prospectus and will be subject to all of the terms and conditions
specified in the Indenture and to the transfer restrictions described in
"Transfer Restrictions."
This description of some of the provisions of the registration rights
agreement is a summary only. We urge you to read the registration rights
agreement because it defines your rights regarding registration of the Notes. A
copy of the registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part.
RANKING
The Notes will be unsecured senior obligations of FelCor LP, and will rank
equally in right of payment with other unsecured Senior Indebtedness of FelCor
LP. The Notes will be effectively subordinated to all of our and our
consolidated Subsidiaries' secured Indebtedness and to all other Indebtedness of
the non-guarantor Subsidiaries. After giving effect to the private offering of
the Old Notes and the application of the net proceeds, our secured Indebtedness
will include only mortgage and capitalized lease debt. As of June 30, 2000,
after giving effect to the private
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offering of the Old Notes and the application of the net proceeds, and share
repurchases through August 31, 2000, we and our consolidated Subsidiaries would
have had approximately $789 million of mortgage and capitalized lease debt,
which is effectively senior to the Notes to the extent of the value of the
underlying assets.
As of June 30, 2000 our non-guarantor Subsidiaries had no other
Indebtedness.
CERTAIN DEFINITIONS
Set forth below are definitions of certain terms contained in the Indenture
that are used in this description. Please refer to the Indenture for the
definition of other capitalized terms used in this description that are not
defined below.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person by a Restricted Subsidiary and not incurred
by such Person in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person that is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of FelCor, FelCor LP and their respective Restricted
Subsidiaries for such period determined on a consolidated basis in conformity
with GAAP plus the minority interest in FelCor LP, if applicable; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income, without duplication:
(1) the net income of any Person, other than FelCor LP, FelCor or a
Restricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to FelCor LP, FelCor or any of their
respective Restricted Subsidiaries by such Person during such period;
(2) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(3) any after-tax gains or losses attributable to Asset Sales;
(4) for so long as the Notes are not rated Investment Grade, any
amount paid or accrued as dividends on Preferred Stock of FelCor LP, FelCor
or any Restricted Subsidiary owned by Persons other than FelCor or FelCor
LP and any of their respective Restricted Subsidiaries; and
(5) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of FelCor LP, FelCor and their respective Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting from the total amount of assets:
(1) all current liabilities of FelCor LP, FelCor and their respective
Restricted Subsidiaries, excluding intercompany items, and
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(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles,
all as set forth on the most recent quarterly or annual consolidated balance
sheet of FelCor LP or FelCor and their respective Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the SEC or provided to the
trustee pursuant to the "SEC Reports and Reports to Holders" covenant.
"Adjusted Total Assets" means, for any Person, the sum of:
(1) Total Assets for such Person as of the end of the calendar quarter
preceding the Transaction Date as set forth on the most recent quarterly or
annual consolidated balance sheet of FelCor LP or FelCor and their
respective Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the SEC or provided to the trustee pursuant to the "SEC Reports
and Reports to Holders" covenant, and
(2) any increase in Total Assets following the end of such quarter
including, without limitation, any increase in Total Assets resulting from
the application of the proceeds of any additional Indebtedness.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means:
(1) an investment by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or
consolidated with FelCor LP or FelCor or any of their respective Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary, incidental or complementary to the businesses of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries on the date of
such investment; or
(2) an acquisition by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries from any other Person that constitutes
substantially all of a division or line of business, or one or more hotel
properties, of such Person; provided that the property and assets acquired
are related, ancillary, incidental or complementary to the businesses of
FelCor LP or FelCor or any of their respective Restricted Subsidiaries on
the date of such acquisition.
"Asset Disposition" means the sale or other disposition by FelCor LP or
FelCor or any of their respective Restricted Subsidiaries, other than to FelCor
LP, FelCor or another Restricted Subsidiary, of:
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary, or
(2) all or substantially all of the assets that constitute a division
or line of business, or one or more hotel properties, of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition, including by
way of merger, consolidation or sale-leaseback transaction, in one transaction
or a series of related transactions
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by FelCor LP or FelCor or any of their Restricted Subsidiaries to any Person
other than FelCor LP or FelCor or any of their respective Restricted
Subsidiaries of:
(1) all or any of the Capital Stock of any Restricted Subsidiary other
than sales permitted under clause (4) of the "Limitation on the Issuance
and Sale of Capital Stock of Restricted Subsidiaries" covenant described
below,
(2) all or substantially all of the property and assets of an
operating unit or business of FelCor LP or FelCor or any of their
respective Restricted Subsidiaries, or
(3) any other property and assets of FelCor LP or FelCor or any of
their respective Restricted Subsidiaries outside the ordinary course of
business of FelCor LP or FelCor or such Restricted Subsidiary and, in each
case, that is not governed by the provisions of the Indenture applicable to
mergers, consolidations and sales of assets of FelCor LP and FelCor;
provided that "Asset Sale" shall not include:
- sales or other dispositions of inventory, receivables an other current
assets,
- sales, transfers or other dispositions of assets with a fair market value
not in excess of $1 million in any transaction or series of related
transactions, or
- sales or other dispositions of assets for consideration at least equal to
the fair market value of the assets sold or disposed of, to the extent
that the consideration received would satisfy the second bullet of clause
(1) of the second paragraph of the "Limitation on Asset Sales" covenant.
"Average Life" means at any date of determination with respect to any debt
security, the quotient obtained by dividing:
(1) the sum of the products of:
- the number of years from such date of determination to the dates
of each successive scheduled principal payment of such debt
security, and
- the amount of such principal payment, by
(2) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether general or
limited, in the equity of such Person, whether outstanding on the Closing Date
or issued thereafter, including, without limitation, all Common Stock, Preferred
Stock and Units.
"Capitalized Lease" means, as applied to any Person, any lease of any
property, whether real, personal or mixed, of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease as reflected on the balance sheet
of such Person in accordance with GAAP.
"Change of Control" means such time as:
(1) a "person" or "group" (as such terms are defined in Sections 13(d)
and 14(d)(2) of the Securities and Exchange Act of 1934 (the "Exchange
Act")), becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of
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more than 35% of the total voting power of the Voting Stock of FelCor or,
other than by FelCor, of FelCor LP on a fully diluted basis; or
(2) individuals who on the Closing Date constitute the Board of
Directors (together with any new or replacement directors whose election by
the Board of Directors or whose nomination by the Board of Directors for
election by FelCor's shareholders was approved by a vote of at least a
majority of the members of the Board of Directors then still in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was so approved) cease for any reason
to constitute a majority of the members of the Board of Directors then in
office.
"Closing Date" means September 15, 2000, the date on which the Notes were
first issued.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) that have no preference on liquidation or with respect to
distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income:
(1) Consolidated Interest Expense,
(2) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses
or sales of assets),
(3) depreciation expense,
(4) amortization expense, and
(5) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made),
less all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for FelCor LP, FelCor and their respective
Restricted Subsidiaries in conformity with GAAP; provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to:
- the amount of the Adjusted Consolidated Net Income attributable to such
Restricted Subsidiary multiplied by
- the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by FelCor LP or
FelCor or any of their respective Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, without duplication,
the aggregate amount of interest expense in respect of Indebtedness during such
period, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP including, without
limitation:
- amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in
accordance with GAAP;
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- all commissions, discounts and other fees and expenses owed with respect
to letters of credit and bankers' acceptance financing;
- the net costs associated with Interest Rate Agreements and Indebtedness
that is Guaranteed or secured by assets of FelCor LP, FelCor or any of
their respective Restricted Subsidiaries; and
- all but the principal component of rentals in respect of capitalized
lease obligations paid, accrued or scheduled to be paid or to be accrued
by FelCor LP, FelCor and their respective Restricted Subsidiaries;
excluding (A) the amount of such interest expense of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (2) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (2) of the definition thereof) and (B) any premiums, fees and
expenses (and any amortization thereof) payable in connection with the offering
of the Notes or paid in connection with any other Indebtedness outstanding on
June 30, 2000, all as determined on a consolidated basis (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the Notes,
(2) redeemable at the option of the holder of such class or series of
Capital Stock, other than Units, at any time prior to the Stated Maturity
of the Notes, or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity prior
to the Stated Maturity of the Notes;
provided that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior to
FelCor LP's repurchase of the Notes as are required to be repurchased pursuant
to the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below.
"DJONT" means DJONT Operations, L.L.C., a Delaware limited liability
company.
"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
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"Funds From Operations" for any period means the consolidated net income of
FelCor LP, FelCor and their respective Restricted Subsidiaries for such period
in conformity with GAAP excluding gains or losses from debt restructurings which
would be extraordinary items in accordance with GAAP and sales of depreciable
operating property, plus depreciation of real property (including furniture and
equipment) and after adjustments for unconsolidated partnerships and joint
ventures plus the minority interest in FelCor LP, if applicable; provided that
for purposes of the payment of any dividend or distribution by FelCor LP or
FelCor, "Funds From Operations" shall be equal to $80 million plus the amount
thereof computed for the period commencing with the first day of the fiscal
quarter in which the Closing Date occurs and ending on the last day of the last
fiscal quarter preceding the payment of such dividend or distribution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to:
- the amortization of any expenses incurred in connection with the offering
of the Notes, and
- except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Government Securities" means direct obligations of, obligations guaranteed
by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States of
America is pledged and that are not callable or redeemable at the option of the
issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in the ordinary
course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise), or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Guarantors" means FelCor and the Subsidiary Guarantors, collectively.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of
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Acquired Indebtedness; provided that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(3) the face amount of letters of credit or other similar instruments
(excluding obligations with respect to letters of credit (including trade
letters of credit) securing obligations (other than obligations described
in (1) or (2) above or (5), (6) or (7) below) entered into in the ordinary
course of business of such Person to the extent such letters of credit are
not drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement),
(4) all unconditional obligations of such Person to pay the deferred
and unpaid purchase price of property or services, which purchase price is
due more than six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services,
except Trade Payables,
(5) all Capitalized Lease Obligations,
(6) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at that date of determination and (B)
the amount of such Indebtedness,
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person, and
(8) to the extent not otherwise included in this definition or the
definition of Consolidated Interest Expense, obligations under Currency
Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations of the type described
above and, with respect to obligations under any Guarantee, the maximum
liability upon the occurrence of the contingency giving rise to the obligation;
provided that:
- the amount outstanding at any time of any Indebtedness issued with
original issue discount shall be deemed to be the face amount with
respect to such Indebtedness less the remaining unamortized portion of
the original issue discount of such Indebtedness at the date of
determination in conformity with GAAP, and
- Indebtedness shall not include any liability for federal state, local or
other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of:
- the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have
been filed with the SEC or provided to the Trustee pursuant to the "SEC
Reports and Reports to Holders" covenant ("Four Quarter Period") to
- the aggregate Consolidated Interest Expense during such Four Quarter
Period.
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In making the foregoing calculation,
(1) pro forma effect shall be given to any Indebtedness Incurred or
repaid (other than in connection with an Asset Acquisition or Asset
Disposition) during the period ("Reference Period") commencing on the first
day of the Four Quarter Period and ending on the Transaction Date (other
than Indebtedness Incurred or repaid under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last
day of such Four Quarter Period unless any portion of such Indebtedness is
projected, in the reasonable judgment of the senior management of FelCor LP
or FelCor, to remain outstanding for a period in excess of 12 months from
the date of the Incurrence thereof), in each case as if such Indebtedness
had been Incurred or repaid on the first day of such Reference Period;
(2) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate
in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months or, if shorter, at least equal
to the remaining term of such Indebtedness) had been the applicable rate
for the entire period;
(3) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition and any Indebtedness Incurred or repaid
in connection with any such Asset Acquisitions or Asset Dispositions) that
occur during such Reference Period but subsequent to the end of the related
Four Quarter Period as if they had occurred and such proceeds had been
applied on the first day of such Reference Period; and
(4) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition and any Indebtedness Incurred or repaid
in connection with any such asset acquisitions or asset dispositions) that
have been made by any Person that has become a Restricted Subsidiary or has
been merged with or into FelCor LP or FelCor or any of their respective
Restricted Subsidiaries during such Reference Period but subsequent to the
end of the related Four Quarter Period and that would have constituted
Asset Dispositions or Asset Acquisitions during such Reference Period but
subsequent to the end of the related Four Quarter Period had such
transactions occurred when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions and had occurred on the first day of such Reference
Period; provided that to the extent that clause (3) or (4) of this sentence
requires that pro forma effect be given to an Asset Acquisition or Asset
Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person,
or division or line of business, or one or more hotel properties, of the
Person that is acquired or disposed of to the extent that such financial
information is available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement with respect to interest rates.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including without limitation by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the consolidated balance sheet of FelCor LP, FelCor and their respective
Restricted Subsidiaries) or capital contribution to (by means of any transfer of
cash or other property (tangible or intangible) to others or any payment for
property or
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services solely for the account or use of others, or otherwise), or any purchase
or acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include:
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, and
(2) the fair market value of the Capital Stock (or any other
Investment), held by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries of (or in) any Person that has ceased to be a
Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (3) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant;
provided that the fair market value of the Investment remaining in any Person
that has ceased to be a Restricted Subsidiary shall be deemed not to exceed the
aggregate amount of Investments previously made in such Person valued at the
time such Investments were made, less the net reduction of such Investments. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant described below:
- "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to FelCor LP or FelCor or any of
their respective Restricted Subsidiaries)) of any Restricted Subsidiary
at the time such Restricted Subsidiary is designated an Unrestricted
Subsidiary,
- the fair market value of the assets (net of liabilities (other than
liabilities to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments, and
- any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"Investment Grade" means a rating of the Notes by both S&P and Moody's,
each such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e. BBB- (or the equivalent) or
higher by S&P and Baa3 (or the equivalent) or higher by Moody's); provided, in
each case, such ratings are publicly available; provided, further, that in the
event Moody's or S&P is no longer in existence for purposes of determining
whether the Notes are rated "Investment Grade," such organization may be
replaced by a nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) designated by FelCor LP and FelCor, notice
of which shall be given to the Trustee.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Line of Credit" means the credit facility established pursuant to the
Fifth Amended and Restated Credit Agreement dated as of August 1, 2000 among
FelCor LP, FelCor, the lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent, Chase Securities, Inc., as Joint Lead Arranger, Joint Book
Manager and Syndication Agent, Bankers Trust Company, as Joint Lead Arranger,
Joint Book Manager and Documentation Agent, Bank of America, N.A., as
Documentation Agent, and Wells Fargo Bank, National Association, as
Co-Documentation Agent, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time; provided that, with respect to an agreement providing for the refinancing
of Indebtedness under the Line of Credit, such agreement shall be the Line of
Credit
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under the Indenture only if a notice to that effect is delivered by FelCor LP
and FelCor to the trustee.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(1) with respect to any Asset Sale, the proceeds of such Asset Sale in
the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed or
sold with recourse to FelCor LP or FelCor or any of their respective
Restricted Subsidiaries) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of:
- brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset
Sale,
- provisions for all taxes actually paid or payable as a result of such
Asset Sale by FelCor LP, FelCor and their respective Restricted
Subsidiaries, taken as a whole,
- payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured
by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale, and
- amounts reserved by FelCor LP, FelCor and their respective Restricted
Subsidiaries against any liabilities associated with such Asset Sale,
including without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined on a consolidated basis in conformity
with GAAP, and
(2) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to FelCor LP or FelCor
or any of their respective Restricted Subsidiaries) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants's fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
tax paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by FelCor LP, from the
holders commenced by mailing a notice to the trustee and each holder stating:
(1) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata
basis;
(2) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) ("Payment Date");
(3) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless FelCor LP defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase
shall cease to accrue interest on and after the Payment Date;
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(5) that holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date;
(6) that holders will be entitled to withdraw their election if the
Payment Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such holder, the principal
amount of Notes delivered for purchase and a statement that such holder is
withdrawing his election to have such Notes purchased; and
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, FelCor LP shall
- accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; and
- deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so accepted;
- and shall promptly thereafter deliver, or cause to be delivered, to the
trustee all Notes or portions thereof so accepted together with an
Officers' Certificate specifying the Notes or portions thereof accepted
for payment by FelCor LP.
The Paying Agent shall promptly mail to the holders of Notes so accepted
payment in an amount equal to the purchase price, and the trustee shall promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of any Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. FelCor LP will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. FelCor LP will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that FelCor LP is required to repurchase Notes pursuant to an Offer
to Purchase.
"Permitted Investment" means:
(1) an Investment in FelCor LP or FelCor or any of their Restricted
Subsidiaries or a Person that will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, FelCor LP or
FelCor or any of their Restricted Subsidiaries; provided that such person's
primary business is related, ancillary, incidental or complementary to the
businesses of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries on the date of such Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; and
(4) stock, obligations or securities received in satisfaction of
judgments.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting) that
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have a preference on liquidation or with respect to distributions over any other
class of Capital Stock, including preferred partnership interests, whether
general or limited, or such Person's preferred or preference stock, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Ratings Downgrade" means a rating of the Notes (1) by S&P and Moody's
lower than, in the case of S&P, BB- and, in the case of Moody's, Ba3; provided
in each case such ratings are publicly available or (2) by S&P or Moody's lower
than, in the case of S&P, BB- or, in the case of Moody's, Ba3; provided that in
any such case such rating is the only rating publicly available.
"Restricted Subsidiary" means any Subsidiary of FelCor LP or FelCor other
than an Unrestricted Subsidiary.
"Secured Indebtedness" means any Indebtedness secured by a Lien upon the
property of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, other than Indebtedness secured by a Stock Pledge to the extent
such Indebtedness does not exceed 50% of Adjusted Total Assets.
"Senior Indebtedness" means the following obligations of FelCor LP or
FelCor or any of their respective Restricted Subsidiaries, whether outstanding
on the Closing Date or thereafter Incurred:
(1) all Indebtedness and all other monetary obligations (including
expenses fees and other monetary obligations) of FelCor LP and FelCor under
the Line of Credit;
(2) all Indebtedness and all other monetary obligations of FelCor LP
or FelCor or any of their respective Restricted Subsidiaries (other than
the Notes), including principal and interest on such Indebtedness, unless
such Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued is expressly
subordinated in right of payment to the Notes; and
(3) Subsidiary Debt.
Senior Indebtedness will also include interest accruing subsequent to
events of bankruptcy of FelCor LP and FelCor and their respective Restricted
Subsidiaries at the rate provided for the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under bankruptcy law.
"Significant Subsidiary" means, at any determination date, any Restricted
Subsidiary that, together with its Subsidiaries:
(1) for the most recent fiscal year of FelCor LP and FelCor, accounted
for more than 10% of the consolidated revenues of FelCor LP, FelCor and
their respective Restricted Subsidiaries, or
(2) as of the end of such fiscal year, was the owner of more than 10%
of the consolidated assets of FelCor LP, FelCor and their respective
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements thereof for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means:
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of
such debt security is due and payable, and
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(2) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security as
the fixed date on which such installment is due and payable.
"Stock Pledge" means a first priority security interest in the equity
interests of subsidiaries of FelCor and/or FelCor LP.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person and the accounts of which
would be consolidated with those of such Person in its consolidated financial
statements in accordance with GAAP, if such statements were prepared as of such
date.
"Subsidiary Debt" means all unsecured Indebtedness of which a Restricted
Subsidiary is the primary obligor.
"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor for
payment of the Notes by such Subsidiary Guarantor. The Subsidiary Guarantee will
be an unsecured senior obligation of each Subsidiary Guarantor and will be
unconditional regardless of the enforceability of the Notes and the Indenture.
Notwithstanding the foregoing, each Subsidiary Guarantee by a Subsidiary
Guarantor shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of FelCor LP or FelCor, of all of the Capital Stock
owned by FelCor LP, FelCor and their respective Restricted Subsidiaries in, or
all or substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not then prohibited by the Indenture).
"Subsidiary Guarantor" means each of the following:
(1) FelCor/CSS Hotels, L.L.C., a Delaware limited liability company;
(2) FelCor/LAX Hotels, L.L.C., a Delaware limited liability company;
(3) FelCor/CSS Holdings, L.P., a Delaware limited partnership;
(4) FelCor/St. Paul Holdings, L.P., a Delaware limited partnership;
(5) FelCor/LAX Holdings, L.P., a Delaware limited partnership;
(6) FelCor Eight Hotels, L.L.C., a Delaware limited liability company;
(7) FelCor Hotel Asset Company, L.L.C., a Delaware limited liability
company;
(8) FelCor Nevada Holdings L.L.C., a Nevada limited liability company;
(9) FHAC Nevada Holdings, L.L.C., a Nevada limited liability company;
(10) FHAC Texas Holdings, L.P., a Texas limited partnership;
(11) FelCor Omaha Hotel Company, L.L.C., a Delaware limited liability
company;
(12) FelCor Country Villa Hotel, L.L.C., a Delaware limited liability
company;
(13) FelCor Moline Hotel, L.L.C., a Delaware limited liability
company;
(14) FelCor Canada Co., a Nova Scotia unlimited liability company; and
(15) each other Restricted Subsidiary that executes a Subsidiary
Guarantee in compliance with the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries" covenant below.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof,
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(2) time deposits accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued
by a bank or trust company which is organized under the laws of the United
States of America, any state thereof, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50 million
and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of FelCor LP
or FelCor) organized and in existence under the laws of the United States
of America, any state of the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P, and
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's.
"Total Assets" means the sum of:
(1) Undepreciated Real Estate Assets, and
(2) all other assets of FelCor LP, FelCor and their respective
Restricted Subsidiaries on a consolidated basis determined in conformity
with GAAP (but excluding intangibles and accounts receivables).
"Total Unencumbered Assets" as of any date means the sum of:
(1) those Undepreciated Real Estate Assets not securing any portion of
Secured Indebtedness, and
(2) all other assets (but excluding intangibles and accounts
receivable) of FelCor LP, FelCor and their respective Restricted
Subsidiaries not securing any portion of Secured Indebtedness determined on
a consolidated basis in accordance with GAAP.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness by FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to
any Restricted Payment, the date such Restricted Payment is to be made.
"Undepreciated Real Estate Assets" means, as of any date, the cost (being
the original cost to FelCor LP or FelCor or any of their respective Restricted
Subsidiaries plus capital improvements) of real estate assets of FelCor LP,
FelCor and their Restricted Subsidiaries on such date, before depreciation and
amortization of such real estate assets, determined on a consolidated basis in
conformity with GAAP.
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"Units" means the limited partnership units of FelCor LP, that by their
terms are redeemable at the option of the holder thereof and that, if so
redeemed, at the election of FelCor are redeemable for cash or Common Stock of
FelCor.
"Unrestricted Subsidiary" means
(1) any Subsidiary of FelCor LP or FelCor that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board
of Directors in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary of FelCor LP or FelCor) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, FelCor LP or FelCor or any of their
respective Restricted Subsidiaries; provided that:
- any Guarantee by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by FelCor LP or FelCor or such Restricted Subsidiary (or
all, if applicable) at the time of such designation;
- either (i) the Subsidiary to be so designated has total assets of $1,000
or less or (ii) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the "Limitation on Restricted
Payments" covenant described below; and
- if applicable, the Incurrence of Indebtedness and the Investment referred
to in the first bullet of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
- no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation; and
- all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have
been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Unsecured Indebtedness" means any Indebtedness of FelCor LP or FelCor or
any of their respective Restricted Subsidiaries that is not Secured
Indebtedness.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
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COVENANTS
The Indenture contains, among others, the following covenants, provided
that the Indenture will provide that the "Limitation on Liens," the "Limitation
on Sale-Leaseback Transactions," the "Limitation on Restricted Payments," the
"Limitation on Dividend and other Payment Restrictions Affecting Restricted
Subsidiaries," the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries," the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries," and the "Limitation on Transactions with Affiliates"
covenants will not be applicable in the event, and only for so long as, the
Notes are rated Investment Grade and no Default or Event of Default has occurred
and is continuing.
Limitation on Indebtedness
(1) Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, Incur any
Indebtedness if, immediately after giving effect to the Incurrence of such
additional Indebtedness, the aggregate principal amount of all outstanding
Indebtedness of FelCor LP, FelCor and their respective Restricted Subsidiaries
on a consolidated basis determined in accordance with GAAP is greater than 60%
of Adjusted Total Assets.
(2) Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, Incur any
Subsidiary Debt or any Secured Indebtedness if, immediately after giving effect
to the Incurrence of such additional Subsidiary Debt or Secured Indebtedness,
the aggregate principal amount of all outstanding Subsidiary Debt and Secured
Indebtedness of FelCor LP, FelCor and their respective Restricted Subsidiaries
on a consolidated basis is greater than 45% of Adjusted Total Assets.
(3) Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries to, Incur any
Indebtedness (other than the existing 7 3/8% and 7 5/8% senior notes, the
Subsidiary Guarantees relating to the existing 7 3/8% and 7 5/8% senior notes
and other Indebtedness existing on the Closing Date); provided that FelCor LP or
FelCor or any of their respective Restricted Subsidiaries may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Interest Coverage Ratio of FelCor
LP, FelCor and their respective Restricted Subsidiaries on a consolidated basis
would be greater than 2.0 to 1.
(4) Notwithstanding paragraphs (1), (2) or (3), FelCor LP or FelCor or any
of their respective Restricted Subsidiaries (except as specified below) may
Incur each and all of the following:
(A) Indebtedness outstanding under the Line of Credit at any time in
an aggregate principal amount not to exceed $700 million less any amount of
such Indebtedness permanently repaid as provided under the "Limitation on
Asset Sales" covenant described below;
(B) Indebtedness owed to:
- FelCor LP or FelCor evidenced by an unsubordinated promissory note, or
- to any Restricted Subsidiary;
provided that any event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to FelCor LP or FelCor or any other Restricted Subsidiary) shall be
deemed, in each case, to constitute an Incurrence of such Indebtedness not
permitted by this clause (B);
(C) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, outstanding Indebtedness (other than
Indebtedness Incurred under
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clause (A), (B), (D) or (F) of this paragraph (4)) and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund the
Notes or Indebtedness that ranks equally with or subordinate in right of
payment to, the Notes shall only be permitted under this clause (C) if:
- in case the Notes are refinanced in part or the Indebtedness to be
refinanced ranks equally with the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is outstanding, ranks equally with or is
expressly made subordinate in right of payment to the remaining Notes,
- in case the Indebtedness to be refinanced is subordinated in right of
payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the Notes at least to the extent
that the Indebtedness to be refinanced is subordinated to the Notes,
and
- such new Indebtedness, determined as of the date of Incurrence of such
new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of FelCor LP or FelCor that
ranks equally with or subordinate in right of payment to the Notes be refinanced
by means of any Indebtedness of any Restricted Subsidiary pursuant to this
clause (C);
(D) Indebtedness:
- in respect of performance, surety or appeal bonds provided in the
ordinary course of business,
- under Currency Agreements and Interest Rate Agreements; provided that
such agreements (i) are designed solely to protect FelCor LP or FelCor
or any of their respective Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and
(ii) do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder, and
- arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any obligations
of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds actually
received by FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis in connection with such
disposition;
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(E) Indebtedness of FelCor LP or FelCor, to the extent the net
proceeds thereof are promptly:
- used to purchase Notes tendered in an Offer to Purchase made as a
result of a Change in Control, or
- deposited to defease the Notes as described below under "Defeasance;"
or
(F) Guarantees of the Notes and the existing 7 7/8% and 7 5/8% notes
and Guarantees of Indebtedness of FelCor LP or FelCor by any of their
respective Restricted Subsidiaries provided the guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant described
below.
(5) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that FelCor LP or FelCor or any
of their respective Restricted Subsidiaries may Incur pursuant to this
"Limitation on Indebtedness" covenant shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies.
(6) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant,
- Indebtedness Incurred under the Line of Credit on or prior to the Closing
Date shall be treated as Incurred pursuant to clause (A) of paragraph (4)
of this "Limitation on Indebtedness" covenant,
- Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included, and
- any Liens granted pursuant to the equal and ratable provisions referred
to in the "Limitation on Liens" covenant described below shall not be
treated as Indebtedness.
For purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses (other than
Indebtedness referred to in second bullet in this paragraph (6), each of FelCor
LP and FelCor, in its sole discretion, shall classify such item of Indebtedness
and only be required to include the amount and type of such Indebtedness in one
of such clauses; provided that FelCor LP and FelCor must classify such item of
Indebtedness in an identical fashion.
Maintenance of Total Unencumbered Assets
FelCor LP, FelCor and their respective Restricted Subsidiaries will
maintain Total Unencumbered Assets of not less than 150% of the aggregate
outstanding principal amount of the Unsecured Indebtedness of FelCor LP, FelCor
and their respective Restricted Subsidiaries on a consolidated basis.
Limitation on Liens
Neither FelCor LP nor FelCor shall secure any Indebtedness under the Line
of Credit by a Lien unless contemporaneously therewith effective provision is
made to secure the notes equally and ratably with the Indebtedness under the
Line of Credit for so long as the Indebtedness under the Line of Credit is
secured by such Lien.
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Limitation on Sale-Leaseback Transactions
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby any of them sells or transfers such assets
or properties and then or thereafter leases such assets or properties or any
substantial part thereof.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
(1) the lease is for a period, including renewal rights, of not in
excess of three years;
(2) the lease secures or relates to industrial revenue or pollution
control bonds;
(3) the transaction is solely between FelCor LP or FelCor and any
Wholly Owned Restricted Subsidiary or solely between Wholly Owned
Restricted Subsidiaries; or
(4) FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (1) or (2) of the second
paragraph of the "Limitation on Asset Sales" covenant described below.
Limitation on Restricted Payments
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock held by Persons other than FelCor LP or FelCor
or any of their respective Restricted Subsidiaries, other than:
- dividends or distributions payable solely in shares of its Capital
Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire shares of such Capital Stock, and
- pro rata dividends or distributions on Common Stock of FelCor LP or
any Restricted Subsidiary held by minority stockholders;
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of:
- FelCor LP, FelCor or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held
by any Person other than FelCor LP or FelCor or any of their
respective Restricted Subsidiaries unless in connection with such
purchase the Unrestricted Subsidiary is designated as a Restricted
Subsidiary, or
- a Restricted Subsidiary (including options, warrants or other rights
to acquire such shares of Capital Stock) held by an Affiliate of
FelCor LP or FelCor (other than a Wholly Owned Restricted Subsidiary)
or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of FelCor LP or FelCor;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of FelCor LP or FelCor that is
subordinated in right of payment to the Notes; or
(4) make an Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (1) through
(4) above being
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collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing,
(B) FelCor LP or FelCor could not Incur at least $1.00 of
Indebtedness under the paragraphs (1), (2) and (3) of the "Limitation on
Indebtedness" covenant, or
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Closing Date shall exceed the sum of:
- 95% of the aggregate amount of the Funds From Operations (or, if
the Funds From Operations is a loss, minus 100% of the amount of
such loss) (determined by excluding income resulting from transfers
of assets by FelCor LP or FelCor or any of their respective
Restricted Subsidiaries to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter in which the
Closing Date occurs and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been
filed with the SEC or provided to the Trustee pursuant to the "SEC
Reports and Reports to Holders" covenant, plus
- the aggregate Net Cash Proceeds received by FelCor LP or FelCor
after the Closing Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of FelCor LP or FelCor, including an
issuance or sale permitted by the Indenture of Indebtedness of
FelCor LP or FelCor for cash subsequent to the Closing Date upon
the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of FelCor LP or FelCor, or from the issuance to
a Person who is not a Subsidiary of FelCor LP or FelCor of any
options, warrants or other rights to acquire Capital Stock of
FelCor LP or FelCor (in each case, exclusive of any Disqualified
Stock or any options, warrants or other rights that are redeemable
at the option of the holder, or are required to be redeemed, prior
to the Stated Maturity of the Notes), plus
- an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to
FelCor LP or FelCor or any of their respective Restricted
Subsidiaries or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Funds From
Operations) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments") not to exceed, in each case, the
amount of Investments previously made by FelCor LP, FelCor and
their respective Restricted Subsidiaries in such Person or
Unrestricted Subsidiary, plus
- the purchase price of noncash tangible assets acquired in exchange
for an issuance of Capital Stock (other than Disqualified Stock) of
FelCor LP or FelCor subsequent to the Closing Date.
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Notwithstanding the foregoing, FelCor LP or FelCor may declare or pay any
dividend or make any distribution that is necessary to maintain FelCor's status
as a REIT under the Code if:
- the aggregate principal amount of all outstanding Indebtedness of FelCor
LP or FelCor on a consolidated basis at such time is less than 60% of
Adjusted Total Assets, and
- no Default or Event of Default shall have occurred and be continuing.
The foregoing provisions shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (C) of paragraph (4) of the "Limitation on Indebtedness"
covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock
of FelCor LP or FelCor or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a substantially concurrent issuance of, shares of Capital
Stock (other than Disqualified Stock) of FelCor LP or FelCor (or options,
warrants or other rights to acquire such Capital Stock);
(4) the making of any principal payment on, or the repurchase,
redemption, retirement, defeasance or other acquisition for value of,
Indebtedness of FelCor LP or FelCor which is subordinated in right of
payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent issuance of, shares of the Capital Stock (other
than Disqualified Stock) of FelCor LP or FelCor (or options, warrants or
other rights to acquire such Capital Stock);
(5) payments or distributions, to dissenting stockholders pursuant to
applicable law pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially
all of the property and assets of FelCor LP or FelCor;
(6) Investments in any Person or Persons in an aggregate amount not to
exceed $150 million; or
(7) Restricted Payments in an aggregate amount not to exceed $200
million, provided that at the time of, and after giving effect to, the
proposed Restricted Payment FelCor LP and FelCor could have incurred at
least $1.00 of Indebtedness under paragraphs (1), (2) and (3) of the
"Limitation on Indebtedness" covenant;
provided that, except in the case of clauses (1) and (3), no Default or
Event of Default shall have occurred and be continuing or occur as a
direct consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to this paragraph (other than the
Restricted Payment referred to in clause (2) of this paragraph, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4)
of this paragraph, an Investment referred to in clause (6) of this paragraph or
a Restricted Payment referred to in clause (7) of this paragraph), and the Net
Cash Proceeds from any issuance of Capital Stock referred to in clauses (3) and
(4), shall be included in calculating whether the conditions of clause (C) of
the first paragraph of this "Limitation on Restricted Payments" covenant have
been met with respect to any subsequent Restricted Payments.
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Notwithstanding anything to the contrary contained in this "Limitation on
Restricted Payments" covenant, except in the case of clauses (3) and (5) of the
immediately preceding paragraph, in no case shall FelCor LP, FelCor or any of
their respective Restricted Subsidiaries, directly or indirectly, purchase,
redeem or otherwise acquire any Capital Stock unless at the time of, and after
giving effect to, such proposed Restricted Payment, the ratio of Indebtedness to
Consolidated EBITDA of FelCor LP, FelCor and their respective Restricted
Subsidiaries on a consolidated basis would be equal to or less than 4.85 to 1.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to:
- pay dividends or make any other distributions permitted by applicable law
on any Capital Stock of such Restricted Subsidiary owned by FelCor LP or
FelCor or any of their respective Restricted Subsidiaries,
- pay any Indebtedness owed to FelCor LP, FelCor or any other Restricted
Subsidiary,
- make loans or advances to FelCor LP, FelCor or any other Restricted
Subsidiary, or
- transfer its property or assets to FelCor LP, FelCor or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or restrictions:
(1) existing on the Closing Date in the Indenture, the Line of Credit
and any other agreement in effect on the Closing Date to the extent listed
on a schedule to the Indenture, and any extensions, refinancings, renewals
or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law;
(3) existing with respect to any Person or the property or assets of
such Person acquired by FelCor LP, FelCor or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired;
(4) in the case of the last bullet in the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant:
- that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance
or contract or similar property or asset,
- existing by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of FelCor
LP, FelCor or any Restricted Subsidiary not otherwise prohibited by
the Indenture, or
- arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of FelCor LP,
FelCor or any Restricted Subsidiary in any manner material to FelCor
LP, FelCor and their respective Restricted Subsidiaries taken as a
whole;
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(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or
(6) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if:
- the encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in
such Indebtedness or agreement,
- the encumbrance or restriction is not material more disadvantageous to
the holders of the Notes than is customary in comparable financings
(as determined by FelCor LP and FelCor), and
- each of FelCor LP and FelCor determines that an such encumbrance or
restriction will not materially affect such Persons' ability to make
principal or interest payments on the Notes.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent FelCor
LP, FelCor or any Restricted Subsidiary from:
- creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the "Limitation on Liens" covenant, or
- restricting the sale or other disposition of property or assets of FelCor
LP or FelCor or any of their respective Restricted Subsidiaries that
secure Indebtedness of FelCor LP, FelCor or any of their respective
Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Neither FelCor LP nor FelCor will sell, and neither FelCor LP nor FelCor
will permit any of their respective Restricted Subsidiaries, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except:
(1) to FelCor LP, FelCor or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or sales to individuals
of shares of Restricted Subsidiaries, to the extent required by applicable
law or to the extent necessary to obtain local liquor licenses;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Subsidiary and any
Investment in such Person remaining after giving effect to such issuance or
sale would have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such issuance or sale,
or
(4) sales of not greater than 20% of the Capital Stock of a
newly-created Restricted Subsidiary made in connection with, or in
contemplation of, the acquisition or development by such Restricted
Subsidiary of one or more properties to any Person that is, or is an
Affiliate of, the entity that provides, franchise management or other
services, as the case may be, to one or more properties owned by such
Restricted Subsidiary.
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Limitation on Issuances of Guarantees by Restricted Subsidiaries
Neither FelCor LP nor FelCor will permit any of their respective Restricted
Subsidiaries, directly or indirectly, to Guarantee any Indebtedness of FelCor LP
or FelCor which ranks equally with or subordinate in right of payment to the
Notes ("Guaranteed Indebtedness"), unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Subsidiary
Guarantee by such Restricted Subsidiary, and
(2) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against FelCor
LP, FelCor or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee;
provided that this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness:
- ranks equally with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall rank equally with, or subordinate to, the Subsidiary
Guarantee, or
- is subordinate to the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at least
to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon:
(1) any sale, exchange or transfer, to any Person not an Affiliate of
FelCor LP or FelCor, of all of Capital Stock held by FelCor LP, FelCor and
their respective Restricted Subsidiaries in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer
is not prohibited by the Indenture), or
(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
Limitation on Transactions with Affiliates
Neither FelCor LP nor FelCor will, and neither FelCor LP nor FelCor will
permit any of their respective Restricted Subsidiaries to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitations, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of FelCor LP or FelCor or with any
Affiliate of FelCor LP or FelCor or any of their respective Restricted
Subsidiaries, except upon fair and reasonable terms no less favorable to FelCor
LP, FelCor or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the independent
directors of FelCor or (B) for which FelCor LP, FelCor or any Restricted
Subsidiary delivers to the trustee a written opinion of a nationally
recognized investment banking firm stating that the
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transaction is fair to FelCor LP, FelCor or such Restricted Subsidiary from
a financial point of view;
(2) any transaction solely between FelCor LP or FelCor and any of
their respective Wholly Owned Restricted Subsidiaries or solely between
Wholly Owned Restricted Subsidiaries;
(3) the payment of reasonable and customary fees and expenses to
directors of FelCor who are not employees of FelCor;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between FelCor LP or FelCor and any other Person with which
FelCor LP or FelCor files a consolidated tax return or with which FelCor LP
or FelCor is part of a consolidated group for tax purposes; or
(5) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Affiliates" covenant and not covered by (2) through (5) of the immediately
foregoing paragraph,
- the aggregate amount of which exceeds $2 million in value or relates to
the leasing of one or more hotel properties to DJONT, must be approved or
determined to be fair in the manner provided for in clause (1)(A) or (B)
above, and
- the aggregate amount of which exceeds $5 million in value, must be
determined to be fair in the manner provided for in clause (1)(B) above.
Limitation on Asset Sales
Neither FelCor LP nor FelCor will, and neither FelCor LP or FelCor will
permit any of their respective Restricted Subsidiaries to, consummate any Asset
Sale, unless:
(1) the consideration received by FelCor LP, FelCor or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of, and
(2) at least 75% of the consideration received consists of cash or
Temporary Cash Investments; provided, with respect to the sale of one or
more hotel properties that up to 75% of the consideration may consist of
indebtedness of the purchaser of such hotel properties; provided, further,
that such indebtedness is secured by a first priority Lien on the hotel
property or properties sold.
In the event and to the extent that the Net Cash Proceeds received by
FelCor LP, FelCor or such Restricted Subsidiary from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of FelCor LP, FelCor and their respective Restricted
Subsidiaries has been filed with the SEC or provided to the Trustee pursuant to
the "SEC Reports and Reports to Holders" covenant), then FelCor LP or FelCor
shall or shall cause the relevant Restricted Subsidiary to:
(1) within 12 months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets:
- apply an amount equal to such excess Net Cash Proceeds to permanently
reduce Senior Indebtedness of FelCor LP, FelCor, or any Restricted
Subsidiary or Indebted-
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ness of any other Restricted Subsidiary, in each case owing to a
Person other than FelCor LP, FelCor or any of their respective
Restricted Subsidiaries, or
- invest an equal amount, or the amount not so applied pursuant to the
foregoing bullet (or enter into a definitive agreement committing to
so invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or
that are used in a business (or in a Restricted Subsidiary having
property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets
of, or the business of, FelCor LP or FelCor or any of their respective
Restricted Subsidiaries existing on the date of such investment, and
(2) apply (no later than the end of the 12-month period referred to in
clause (1)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (1)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied (or to
be committed to be applied) during such 12-month period as set forth in clause
(1) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds." If, as of the first day of any
calendar month, the aggregate amount of Excess Proceeds not previously subject
to an Offer to Purchase pursuant to this "Limitation on Asset Sales" covenant
totals at least $10 million, FelCor LP must commence, not later than the
fifteenth Business Day of such month, and consummate an Offer to Purchase from
the holders on a pro rata basis an aggregate principal amount of Notes equal to
the Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount of the Notes, plus, in each case, accrued interest (if any) to
the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
FelCor LP must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount of the Notes, plus
accrued interest (if any) to the Payment Date.
There can be no assurance that FelCor LP will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any covenant that may be contained in other securities of FelCor LP or FelCor
that might be outstanding at the time). The above covenant requiring FelCor LP
to repurchase the Notes will, unless consents are obtained, require FelCor LP to
repay all indebtedness then outstanding which by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not FelCor LP or FelCor is then required to file reports with
the SEC, FelCor LP and FelCor shall file with the SEC all such reports and other
information as they would be required to file with the SEC by Sections 13(a) or
15(d) under the Exchange Act if they were subject thereto; provided that, if
filing such documents by FelCor LP or FelCor with the SEC is not permitted under
the Exchange Act, FelCor LP or FelCor shall provide such documents to the
trustee and upon written request supply copies of such documents to any
prospective holder; provided, further, that if the rules and regulations of the
SEC permit FelCor LP and FelCor to file combined reports or information pursuant
to the Exchange Act, FelCor LP and FelCor may file combined reports and
information. FelCor LP and FelCor shall supply the trustee and each holder or
shall supply to the trustee for forwarding to each such holder, without cost to
such holder, copies of such reports and other information.
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EVENTS OF DEFAULT
Events of Default under the Indenture include the following:
(1) default in the payment of principal of, or premium, if any, on any
Note when they are due and payable at maturity, upon acceleration,
redemption or otherwise;
(2) default in the payment of interest on any Note when they are due
and payable, and such default continues for a period of 30 days;
(3) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of FelCor LP and FelCor or the failure by
FelCor LP to make or consummate an Offer to Purchase in accordance with the
"Limitations on Asset Sales" or "Repurchase of Notes upon a Change of
Control" covenants;
(4) FelCor LP or FelCor defaults in the performance of or breaches any
other covenant or agreement of FelCor LP or FelCor in the Indenture or
under the Notes (other than a default specified in clause (1), (2) or (3)
above) and such default or breach continues for a period of 30 consecutive
days after written notice by the trustee or the holders of 25% or more in
aggregate principal amount of the Notes;
(5) there occurs with respect to any issue or issues of Indebtedness
of FelCor LP or FelCor or any Significant Subsidiary having an outstanding
principal amount of $10 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created,
- an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and
such Indebtedness has not been discharged in full or such acceleration
has not been rescinded or annulled within 30 days of such acceleration
and/or
- the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been
made, waived or extended within 30 days of such payment default;
(6) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not covered by insurance):
- shall be rendered against FelCor LP or FelCor or any Significant
Subsidiary and shall not be paid or discharged, and
- and there shall be any period of 60 consecutive days following entry
of the final judgment or order that causes the aggregate amount for
all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10 million during which
a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(7) a court having jurisdiction in the premises enters a decree or
order for:
- relief in respect of FelCor LP or FelCor or any Significant Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect,
- appointment of a receiver, liquidator, assignee custodian, trustee,
sequestrator or similar official of FelCor LP or FelCor or any
Significant Subsidiary or for all or substantially all of the property
and assets of FelCor LP or FelCor or any Significant Subsidiary, or
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- the winding up or liquidation of the affairs of FelCor LP or FelCor or
any Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive
days; or
(8) FelCor LP or FelCor or any Significant Subsidiary:
- commences a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under such law,
- consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of FelCor LP or FelCor or Significant Subsidiary or for all
or substantially all of the property and assets of FelCor LP or FelCor
or any Significant Subsidiary, or
- effects any general assignment for the benefit of its creditors.
If an Event of Default (other than an Event of Default specified in clause
(7) or (8) above that occurs with respect to FelCor LP or FelCor) occurs and is
continuing under the Indenture, the trustee or the holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
FelCor LP and FelCor (and to the trustee if such notice is given by the
holders), may, and the trustee at the request of the holders of at least 25% in
aggregate principal amount of the Notes then outstanding shall, declare the
principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable.
In the event of a declaration of acceleration because an Event of Default set
forth in clause (5) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (5) shall be
remedied or cured by FelCor LP, FelCor or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto.
If an Event or Default specified in clause (7) or (8) above occurs with
respect to FelCor LP or FelCor, the principal of, premium, if any, and accrued
interest on the Notes then outstanding shall automatically become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holder. The holders of at least a majority in principal
amount of the outstanding Notes by written notice to FelCor LP, FelCor and to
the trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if:
- all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or
waived, and
- the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction.
As to the waiver of defaults, see "-- Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the trustee
in personal liability, or that the trustee determines in good faith may be
unduly prejudicial to the rights of holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from
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holders of Notes. A holder may not pursue any remedy with respect to the
Indenture or the Notes unless:
(1) the holder gives the trustee written notice of a continuing Event
of Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the trustee to pursue the
remedy;
(3) such holder or holders offer the trustee indemnity satisfactory to
the trustee against any costs, liability or expense;
(4) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding Notes do not give the trustee a
direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of a Note
to receive payment of the principal of, premium, if any, or interest on, such
Note or to bring suit for the enforcement of any such payment on or after the
due date expressed in the Notes, which right shall not be impaired or affected
without the consent of the holder.
The Indenture requires certain officers of FelCor LP and FelCor to certify,
on or before a date not more than 90 days after the end of each fiscal year,
that a review has been conducted of the activities of FelCor LP and FelCor and
their respective Restricted Subsidiaries and of their performance under the
Indenture and that FelCor LP and FelCor have fulfilled all obligations
thereunder, or, if there has been a default in fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
FelCor LP and FelCor will also be obligated to notify the trustee of any default
or defaults in the performance of any covenants or agreements under the
Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither FelCor LP nor FelCor will merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially of its property and
assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into FelCor LP or FelCor unless:
(1) FelCor LP or FelCor shall be the continuing Person, or the Person
(if other than FelCor LP or FelCor) formed by such consolidation or into
which FelCor LP or FelCor is merged or that acquired or leased such
property and assets of FelCor LP or FelCor shall be an entity organized and
validly existing under the laws of the United States of America or any
state or jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the trustee, all of the obligations of
FelCor LP or FelCor on the Notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis FelCor LP or FelCor, or any Person becoming the successor obligor of
the Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under paragraphs (1), (2) and (3) of the "Limitation on Indebtedness"
covenant; provided that this clause (3) shall not apply to a consolidation
or merger with or into a Wholly Owned Restricted Subsidiary with a positive
net worth; provided that, in connection with any such merger or
consolidation, no consideration (other than Capital Stock (other than
Disqualified Stock) in the surviving
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Person or FelCor LP or FelCor) shall be issued or distributed to the
holders of Capital Stock of FelCor LP or FelCor; and
(4) FelCor LP or FelCor delivers to the trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (3)) and an Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided that
clause (3) above does not apply if, in the good faith determination of the
Board of Directors of FelCor LP or FelCor, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction
is to change the state of domicile of FelCor LP or FelCor; and provided,
further, that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that FelCor LP, FelCor
and the Subsidiary Guarantors will be deemed to have paid and will be discharged
from any and all obligations in respect of the Notes or any Subsidiary Guarantee
on the 123rd day after the deposit referred to below, and the provisions of the
Indenture will no longer be in effect with respect to the Notes (except for,
among other things: certain obligations to register the transfer or exchange of
the Notes; to replace stolen, lost or mutilated Notes; to maintain paying
agencies and to hold monies for payment in trust) if, among other things,
(1) FelCor LP has deposited with the trustee, in trust, money and/or
U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes,
(2) FelCor LP has delivered to the trustee:
(A) either
- an Opinion of Counsel to the effect that holders will not recognize
income, gain or loss for federal income tax purposes as a result of
FelCor LP's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service
to the same effect unless there has been a change in applicable
federal income tax law after the Closing Date such that a ruling is
no longer required, or
- a ruling directed to the trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of
Counsel, and
(B) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will
not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(3) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the
date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
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instrument to which FelCor LP, FelCor or any of their respective Restricted
Subsidiaries is a party or by which FelCor LP, FelCor or any of their
respective Restricted Subsidiaries are bound, and
(4) if at such time the Notes are listed on a national securities
exchange, FelCor LP has delivered to the trustee an Opinion of Counsel to
the effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clause (3) under "Consolidation, Merger and Sale of
Assets" and all the covenants described herein under "Covenants," clause (3)
under "Events of Default" with respect to such clause (3) under "Consolidation,
Merger and Sale of Assets," clause (4) under "Events of Default" with respect to
such other covenants and clauses (5) and (6) under "Events of Default" shall be
deemed not to be Events of Default upon, among other things:
(1) the deposit with the trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance
with the terms of the Indenture and the Notes,
(2) the satisfaction of the provisions described in clauses (2)(B),
(3) and (4) of the preceding paragraph titled "Defeasance and Discharge,"
and
(3) the delivery by FelCor LP to the trustee of an Opinion of Counsel
to the effect that, among other things, the holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit and
defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event FelCor LP
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, FelCor LP, FelCor
and the Subsidiary Guarantors will remain liable for such payments.
MODIFICATION AND WAIVER
Subject to certain limited exceptions, modifications and amendments of the
Indenture may be made by FelCor LP, FelCor and the trustee with the consent of
the holders of not less than a majority in aggregate principal amount of the
outstanding Notes; provided that no such modification or amendment may, without
the consent of each holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note,
(2) reduce the principal amount of, or premium, if any, or interest
on, any Note,
(3) change the place of payment of principal of, or premium, if any,
or interest on, any Note,
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(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Note,
(5) reduce the above-stated percentages of outstanding Notes the
consent of whose holders is necessary to modify or amend the Indenture,
(6) waive a default in the payment of principal of, premium, if any,
or interest on the Notes,
(7) voluntarily release a Guarantor of the Notes, or
(8) reduce the percentage or aggregate principal amount of outstanding
Notes the consent of whose holders is necessary for waiver of compliance
with certain provisions of the Indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, PARTNERS, STOCKHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of FelCor LP or FelCor in the Indenture, or in
any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, partner, stockholder, officer,
director, employee or controlling person of FelCor LP, FelCor or the Subsidiary
Guarantors or of any successor Person thereof. Each holder, by accepting the
Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the trustee will not be liable, except for the performance of such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939
incorporated by reference into the Indenture contain limitations on the rights
of the trustee, should it become a creditor of FelCor LP or FelCor, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
BOOK ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons. Old Notes sold in reliance on Rule
144A are represented by the Global Old Notes. New Notes issued in exchange for
the Global Old Notes will be issued in the form of one or more Global New Notes
and will be deposited with the trustee as custodian for, and registered in the
name of a nominee of, DTC.
Old Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") were in registered form without interest coupons and represented by
the Certificated Old Notes. New Notes issued in exchange for the Certificated
Old Notes will be issued in the form of one or more Certificated New Notes.
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Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Global Note directly through DTC if they are participants in such
system, or indirectly through organizations that are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither FelCor LP, FelCor, any Subsidiary Guarantor, the trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
FelCor LP expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. FelCor LP also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
FelCor LP expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which, in
the case of a Global Old Note, may be legended with respect to the restrictions
on transfer thereof.
FelCor LP understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
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Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among its participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither FelCor LP, FelCor, any
Subsidiary Guarantor, nor the trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by FelCor LP within
90 days, FelCor LP will issue Certificated Notes, which, in the case of a Global
Old Note, may bear a legend with respect to the restrictions on transfer
thereof, in exchange for the Global Notes. Holders of an interest in a Global
Note may receive Certificated Notes, which, in the case of a Global Old Note,
may bear a legend with respect to the restrictions on transfer thereof, in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
128
<PAGE> 133
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material United States
federal income tax aspects of the exchange offer to holders of the Old Notes.
This discussion is for general information only and does not consider all
aspects of exchange offer that might impact owners of the Old Notes in light of
such holder's personal circumstances. This discussion deals only with Old Notes
held as "capital assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code") (generally property held for
investment and not for sale to customers in the ordinary course of a trade or
business). This discussion also does not address the U.S. federal income tax
consequences to holders subject to special treatment under the U.S. federal
income tax laws, such as dealers in securities, or foreign currency, tax-exempt
entities, banks, thrifts, insurance companies, persons that hold the Old Notes
as part of a "straddle", a "hedge" against currency risk or a "conversion
transaction"; persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, this discussion
does not address any of the United States federal income tax consequences of
owning or disposing of New Notes, nor does it address any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations thereunder, Internal Revenue Service
("IRS") rulings and pronouncements, reports of congressional committees,
judicial decisions and current administrative rulings and practice, all as in
effect on the date hereof, all of which are subject to change at any time, and
any such change may be applied retroactively in a manner that could adversely
affect the tax consequences described below. The Company has not and will not
seek any rulings or opinions from the IRS or counsel with respect to the matters
discussed below. There can be no assurance that the IRS will not take positions
concerning the tax consequences of the exchange offer which are different from
those discussed herein.
The exchange of Old Notes for New Notes pursuant to the exchange offer
should not constitute a taxable exchange. As a result, a holder (1) should not
recognize taxable gain or loss as a result of exchanging Old Notes for New Notes
pursuant to the exchange offer, (2) the holding period of the New Notes should
include the holding period of the Old Notes exchanged therefor and (3) the
adjusted tax basis of the New Notes should be the same as the adjusted tax basis
of the Old Notes exchanged therefore immediately before the exchange.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS OF OLD NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED ABOVE IN LIGHT OF
THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, INCLUDING THE EFFECTS OF CHANGES IN SUCH LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the expiration date and
ending 180 days after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
129
<PAGE> 134
We will not receive any proceeds from any sales of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the securities act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the Registration Rights Agreement and will indemnify the
holders of Old Notes (including any broker-dealers), and certain parties related
to such holders, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes will be
passed upon for FelCor and FelCor LP by Jenkens & Gilchrist, a Professional
Corporation, Dallas, Texas. Certain legal matters relating to the offering are
being passed upon for the initial purchasers by King & Spalding, Atlanta,
Georgia. Jenkens & Gilchrist and King & Spalding will rely on the opinion of
Miles & Stockbridge, a Professional Corporation, Baltimore, Maryland, with
respect to all matters involving Maryland law.
EXPERTS
The consolidated financial statements of FelCor Lodging Limited Partnership
as of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999 included in this Prospectus; the consolidated financial
statements of FelCor Lodging Trust Incorporated incorporated in this prospectus
by reference to FelCor Lodging Trust Incorporated's Annual Report on Form 10-K
for the year ended December 31, 1999 and the financial statements of FelCor
Lodging Trust Incorporated incorporated in this prospectus by reference to the
Current Report on Form 8-K dated October 4, 2000; and the consolidated financial
statements of DJONT Operations, L.L.C. incorporated in this prospectus by
reference to the Annual Report on Form 10-K of FelCor Lodging Trust Incorporated
for the year ended December 31, 1999 have been so included or incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
130
<PAGE> 135
INDEX TO FINANCIAL STATEMENTS
FELCOR LODGING LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets -- June 30, 2000 (unaudited) and
December 31, 1999......................................... F-2
Consolidated Statements of Operations for the three and six
months ended June 30, 2000 and 1999 (unaudited)........... F-3
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (unaudited).................. F-4
Notes to Consolidated Financial Statements.................. F-5
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
six months ended June 30, 2000, the twelve months ended
June 30, 2000, and the year ended December 31, 1999.... F-15
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-19
Pro Forma Consolidated Balance Sheet as of June 30,
2000................................................... F-20
Notes to Pro Forma Consolidated Balance Sheet............. F-22
Report of Independent Accountants........................... F-23
Consolidated Balance Sheets -- December 31, 1999 and 1998... F-24
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-25
Consolidated Statements of Partners' Capital for the years
ended December 31, 1999, 1998 and 1997.................... F-26
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-27
Notes to Consolidated Financial Statements.................. F-28
FELCOR LODGING TRUST INCORPORATED
Consolidated Balance Sheets -- June 30, 2000 (unaudited) and
December 31, 1999......................................... F-51
Consolidated Statements of Operations for the three and six
months ended June 30, 2000 and 1999 (unaudited)........... F-52
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 (unaudited).................. F-53
Notes to Consolidated Financial Statements.................. F-54
Unaudited Pro Forma Financial Information:
Pro Forma Consolidated Statements of Operations for the
six months ended June 30, 2000, the twelve months ended
June 30, 2000, and the year ended December 31, 1999.... F-62
Notes to Pro Forma Consolidated Statements of
Operations............................................. F-66
Pro Forma Consolidated Balance Sheet as of June 30,
2000................................................... F-67
Notes to Pro Forma Consolidated Balance Sheet............. F-69
</TABLE>
F-1
<PAGE> 136
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotels, net of accumulated depreciation of
$397,735 at June 30, 2000 and $330,555 at December 31,
1999...................................................... $3,796,755 $4,035,344
Investment in unconsolidated entities....................... 133,038 136,718
Assets held for sale........................................ 135,647
Cash and cash equivalents................................... 50,852 36,123
Due from Lessees............................................ 28,598 18,394
Note receivable from unconsolidated entity.................. 7,728 7,760
Deferred expenses, net of accumulated amortization of $6,874
at June 30, 2000 and $4,491 at December 31, 1999.......... 17,093 15,473
Other assets................................................ 7,054 5,939
---------- ----------
Total assets...................................... $4,176,765 $4,255,751
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt, net of discount of $1,288 at June 30, 2000 and $1,401
at December 31, 1999...................................... $1,882,743 $1,833,954
Distributions payable....................................... 35,237 39,657
Accrued expenses and other liabilities...................... 73,335 65,480
Deferred rent............................................... 18,604
Minority interest in other partnerships..................... 50,710 51,671
---------- ----------
Total liabilities................................. 2,060,629 1,990,762
---------- ----------
Commitments and contingencies (Notes 5 and 6)
Redeemable units at redemption value........................ 151,948 52,338
Preferred units:
Series A Cumulative Preferred Units, 6,031 and 6,050 units
issued and outstanding at June 30, 2000 and December
31, 1999, respectively................................. 150,765 151,250
Series B Redeemable Preferred Units, 58 units issued and
outstanding............................................ 143,750 143,750
Partners' capital........................................... 1,669,673 1,917,651
---------- ----------
Total liabilities and partners' capital........... $4,176,765 $4,255,751
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 137
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue................ $133,286 $131,891 $256,335 $256,882
Equity in income from unconsolidated
entities............................. 3,769 2,591 5,648 3,837
Other revenue........................... 810 705 2,687 1,385
-------- -------- -------- --------
Total revenues.................. 137,865 135,187 264,670 262,104
-------- -------- -------- --------
Expenses:
Depreciation............................ 41,080 37,737 81,480 74,162
Reserve for assets held for sale........ 63,000 63,000
Interest expense........................ 39,740 30,750 77,644 59,172
Taxes, insurance, and other............. 17,234 15,425 35,877 32,372
Land leases............................. 6,151 4,479 11,711 8,485
General and administrative.............. 2,713 2,509 6,112 4,753
Minority interest in other
partnerships......................... 1,125 833 2,093 1,639
-------- -------- -------- --------
Total expenses.................. 171,043 91,733 277,917 180,583
-------- -------- -------- --------
Net income (loss) before nonrecurring
items................................... (33,178) 43,454 (13,247) 81,521
Gain on sale of land...................... 875 875
Extraordinary charge from write off of
deferred financing fees................. (1,113) (1,113)
-------- -------- -------- --------
Net income (loss)......................... (32,303) 42,341 (12,372) 80,408
Preferred distributions................... 6,174 6,184 12,358 12,368
-------- -------- -------- --------
Net income (loss) applicable to
unitholders............................. $(38,477) $ 36,157 $(24,730) $ 68,040
======== ======== ======== ========
Per unit data:
Basic:
Net income (loss) applicable to
unitholders.......................... $ (0.62) $ 0.51 $ (0.39) $ 0.96
======== ======== ======== ========
Weighted average units outstanding...... 62,312 71,000 63,066 70,998
======== ======== ======== ========
Diluted:
Net income (loss) applicable to
unitholders.......................... $ (0.62) $ 0.51 $ (0.39) $ 0.95
======== ======== ======== ========
Weighted average units outstanding...... 62,543 71,338 63,297 71,334
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 138
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (12,372) $ 80,408
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 81,480 74,162
Gain on sale of land................................... (875)
Reserve for assets held for sale....................... 63,000
Amortization of deferred financing fees................ 2,383 1,303
Accretion of debt...................................... (446) (494)
Amortization of unearned officers' and directors'
compensation......................................... 472 350
Equity in income from unconsolidated entities.......... (5,648) (3,837)
Extraordinary charge for write off of deferred
financing fees....................................... 1,113
Minority interest in other partnerships................ 2,093 1,639
Changes in assets and liabilities:
Due from Lessees....................................... (10,204) (13,356)
Deferred expenses...................................... (4,003) (5,538)
Other assets........................................... (1,251) (1,140)
Deferred rent.......................................... 18,604
Accrued expenses and other liabilities................. 5,510 15,343
--------- ---------
Net cash flow provided by operating activities.... 138,743 149,953
--------- ---------
Cash flows used in investing activities:
Improvements and additions to hotels...................... (41,408) (148,519)
Acquisition of hotel assets............................... (10,802)
Proceeds from sale of assets.............................. 1,071 15,091
Cash distributions from unconsolidated entities........... 11,708 13,297
--------- ---------
Net cash flow used in investing activities........ (28,629) (130,933)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 500,892 744,000
Repayment of borrowings................................... (451,847) (630,899)
Purchase of treasury stock................................ (56,733)
Buyback of assumed stock options.......................... (1,860)
Other distributions....................................... (3,054)
Distributions paid to preferred unitholders............... (12,368) (13,619)
Distributions paid to unitholders......................... (70,415) (102,625)
--------- ---------
Net cash flow used in financing activities........ (95,385) (3,143)
--------- ---------
Net change in cash and cash equivalents..................... 14,729 15,877
Cash and cash equivalents at beginning of periods........... 36,123 34,692
--------- ---------
Cash and cash equivalents at end of periods................. $ 50,852 $ 50,569
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 73,259 $ 55,549
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 139
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Lodging Limited Partnership and its subsidiaries (the "Company") at
June 30, 2000, owned interests in 188 hotels with nearly 50,000 rooms and suites
(collectively the "Hotels"). The sole general partner of the Company is FelCor
Lodging Trust Incorporated ("FelCor"), one of the nation's largest hotel real
estate investment trusts ("REIT"). At June 30, 2000 FelCor owned a greater than
88% equity interest in the Company. The Company owns 100% of the interest in 163
of the Hotels, a 90% or greater interest in entities owning seven hotels, a 60%
interest in an entity owning two hotels and 50% interests in separate entities
that own 16 hotels.
The Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels
in the world.
At June 30, 2000, the Company leased 86 of the Hotels to DJONT Operations,
L.L.C., a Delaware limited liability company, or a consolidated subsidiary
thereof (collectively "DJONT"), and leased 100 of the Hotels to Bristol Hotels &
Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with
DJONT, the "Lessees"). Two Hotels were operated without a lease.
The following table provides a schedule of the Hotels, by brand, operated
by each of the Company's Lessees at June 30, 2000:
<TABLE>
<CAPTION>
NOT OPERATED
BRAND DJONT BRISTOL UNDER A LEASE TOTAL
----- ----- ------- ------------- -----
<S> <C> <C> <C> <C>
Embassy Suites................................ 60 60
Holiday Inn................................... 43 1 44
Crowne Plaza and Crowne Plaza Suites(R)....... 18 18
Doubletree and Doubletree Guest Suites(R)..... 14 14
Holiday Inn Select(R)......................... 10 10
Sheraton(R) and Sheraton Suites(R)............ 10 10
Hampton Inn(R)................................ 9 9
Holiday Inn Express(R)........................ 5 5
Fairfield Inn(R).............................. 5 5
Harvey Hotel(R)............................... 4 4
Independents.................................. 2 1 3
Courtyard by Marriott(R)...................... 2 2
Four Points by Sheraton(R).................... 1 1
Hilton Suites(R).............................. 1 1
Homewood Suites(R)............................ 1 1
Westin(R)..................................... 1 1
-- --- -- ---
Total Hotels........................ 86 100 2 188
== === == ===
</TABLE>
The Hotels are located in the United States (35 states) and Canada, with a
concentration in Texas (41 hotels), California (20 hotels), Florida (18 hotels)
and Georgia (15 hotels).
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. At June 30, 2000, DJONT had entered into management agreements pursuant
to which 72 of the Hotels leased by it were managed by subsidiaries of Hilton
Hotels Corporation
F-5
<PAGE> 140
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("Hilton"), 11 were managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood") and three were managed by two unrelated management
companies.
At June 30, 2000, Bristol, which became a subsidiary of Bass plc ("Bass")
by virtue of the merger between Bristol and a subsidiary of Bass on March 31,
2000, leased and managed 100 Hotels and managed and operated one hotel, in which
the Company owned a 50% interest, without a lease. Bass is one of the largest
hotel operating companies in the world.
Certain reclassifications have been made to prior period financial
information to conform to the current period's presentation with no effect to
previously reported net income or shareholder's equity.
The financial information for the three and six months ended June 30, 2000
and 1999, is unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results for the periods. The financial information should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1999, included herein. Operating results for the three and
six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 2000.
2. DEFERRED RENT
Effective January 2000, Percentage Leases with regard to 68 of the
Company's 188 hotels were changed to provide for the computation of rent on an
annual, rather than quarterly basis. This should result in no change in annual
Percentage Rent or cash flows. In accordance with Staff Accounting Bulletin No.
101 (SAB 101), this change requires that the Company defer Percentage Lease
revenue until annual thresholds are exceeded. This deferred rent is expected to
be fully earned and recognized as Percentage Lease Revenue by the end of 2000.
3. ASSETS HELD FOR SALE
The Company has identified 25 hotels that it considers non-strategic and
has announced its intention to sell such hotels within the next year. Three of
the hotels are leased by DJONT and the other 22 are leased and managed by
Bristol. The Company expects gross sales proceeds from these hotels to be
approximately $150 million and net proceeds to be approximately $136 million. In
connection with the decision to sell these hotels, the Company has recorded, at
June 30, 2000, a one-time reserve of $63 million representing the difference
between the net book value of these hotels and the estimated net proceeds. The
results of operations associated with the assets held for sale, included in the
Company's results of operations, for the six months ended June 30, 2000, is $6.1
million. The hotels were depreciated through June 30, 2000.
4. INVESTMENT IN UNCONSOLIDATED ENTITIES
The Company owned 50% interests in separate entities owning 16 hotels at
June 30, 2000, and 15 hotels at June 30, 1999, a parcel of undeveloped land, and
a condominium management company. The Company also owned a 97% nonvoting
interest in an entity that owns an annex to a hotel owned by the Company and
holds a 50% interest in an entity that is developing condominiums for sale. The
Company accounts for its investments in these unconsolidated entities under the
equity method.
F-6
<PAGE> 141
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels..................................... $339,795 $269,123
Non-recourse mortgage debt............................... $265,874 $196,462
Equity................................................... $ 88,096 $ 93,524
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Statements of Operations Information:
Total revenues............................... $21,245 $17,137 $39,173 $31,297
Net income................................... $ 8,715 $ 6,358 $13,649 $10,078
Net income attributable to the Company....... $ 4,304 $ 3,127 $ 6,719 $ 4,908
Amortization of cost in excess of book
value..................................... (535) (536) (1,071) (1,071)
------- ------- ------- -------
Equity in income from unconsolidated
entities.................................. $ 3,769 $ 2,591 $ 5,648 $ 3,837
======= ======= ======= =======
</TABLE>
5. DEBT
Debt at June 30, 2000, and December 31, 1999, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
COLLATERAL INTEREST RATE MATURITY DATE 2000 1999
---------------- ------------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Floating Rate Debt:
Line of credit............ (a) LIBOR + 163bp June 2001 $ 285,000 $ 351,000
Senior term loan.......... (a) LIBOR + 275bp March 2004 249,000 250,000
Mortgage debt............. 3 hotels LIBOR + 200bp February 2003 62,239 62,553
Other..................... Uncollateralized Up to LIBOR + 200bp Various 11,032 32,282
---------- ----------
Total floating rate
debt.............. 607,271 695,835
---------- ----------
Fixed Rate Debt:
Line of credit --
swapped................. (a) 7.17-7.56% June 2001 125,000 313,000
Publicly-traded term
notes................... (a) 7.38% October 2004 174,441 174,377
Publicly-traded term
notes................... (a) 7.63% October 2007 124,271 124,221
Mortgage debt............. 15 hotels 7.24% November 2007 141,367 142,542
Senior term loan --
swapped................. (a) 8.56% March 2004 125,000 125,000
Mortgage debt............. 7 hotels 7.54% April 2009 98,354 99,075
Mortgage debt............. 6 hotels 7.55% June 2009 73,946 74,483
Mortgage debt............. 7 hotels 8.73% May 2010 144,865
Mortgage debt............. 8 hotels 8.70% May 2010 185,762
Other..................... 13 hotels 6.96%-7.23% 2000-2005 82,466 85,421
---------- ----------
Total fixed rate
debt.............. 1,275,472 1,138,119
---------- ----------
Total debt.......... $1,882,743 $1,833,954
========== ==========
</TABLE>
------------
(a) Collateralized by stock and partnership interests in certain subsidiaries
of FelCor.
F-7
<PAGE> 142
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Thirty-day LIBOR at June 30, 2000, was 6.649%.
A portion of the Company's Line of Credit and Senior Term Loan is matched
with interest rate swap agreements which effectively convert the variable rate
on the Line of Credit and Senior Term Loan to a fixed rate.
The Line of Credit and the Senior Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At June 30, 2000, the Company was not in default with respect
to any such covenants.
The Company's other borrowings contain affirmative and negative covenants
that are generally equal to or less restrictive than the Line of Credit and
Senior Term Loan. Most of the mortgage debt is non-recourse to the Company (with
certain exceptions) and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions. Most of the mortgage debt is
prepayable; subject, however, to various prepayment penalties, yield
maintenance, or defeasance obligations.
On April 26, 2000, the Company closed a 10-year, $145 million First
Mortgage Term Loan, which is secured by seven Sheraton hotels and carries an
8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of
10-year, First Mortgage Term Loans which are secured by eight Embassy Suites
hotels and carry an 8.70% fixed interest rate. The loans are non-recourse,
mature in May 2010, and amortize over 25 years. The proceeds of these loans were
used to reduce borrowings under the Company's $850 million Line of Credit.
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company is to receive rental income from the Lessees under the
Percentage Leases which expire in 2003 (six hotels), 2004 (11 hotels), 2005 (18
hotels), 2006 (22 hotels), 2007 (27 hotels), 2008 (44 hotels), and thereafter
(19 hotels). The rental income under the Percentage Leases between 15 of the
unconsolidated entities, of which the Company owns 50%, is payable by the Lessee
to the respective entities and is not included in the schedule of future lease
commitments to the Company. Minimum future rental income (i.e., base rents)
payable to the Company under these noncancelable operating leases at June 30,
2000, excluding the 25 hotels that have been designated as held for sale, is as
follows (in thousands):
<TABLE>
<CAPTION>
LESSEES
-----------------------
YEAR DJONT BRISTOL TOTAL
---- ---------- ---------- ----------
<S> <C> <C> <C>
Remainder of 2000........................ $ 72,351 $ 84,402 $ 156,753
2001..................................... 148,009 168,805 316,814
2002..................................... 148,240 168,816 317,056
2003..................................... 137,190 166,123 303,313
2004..................................... 132,584 158,827 291,411
2005 and thereafter...................... 447,848 620,570 1,068,418
---------- ---------- ----------
$1,086,222 $1,367,543 $2,453,765
========== ========== ==========
</TABLE>
F-8
<PAGE> 143
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future rental income (i.e., base rents) payable to the Company
under the noncancelable operating leases for the 25 hotels held for sale as of
June 30, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
LESSEES
-----------------
YEAR DJONT BRISTOL TOTAL
---- ------- ------- --------
<S> <C> <C> <C>
Remainder of 2000................................ $ 1,575 $ 6,338 $ 7,913
2001............................................. 3,150 12,676 15,826
2002............................................. 3,150 12,676 15,826
2003............................................. 3,150 12,578 15,728
2004............................................. 3,150 12,382 15,532
2005 and thereafter.............................. 4,696 34,255 38,951
------- ------- --------
$18,871 $90,905 $109,776
======= ======= ========
</TABLE>
Certain entities owning interests in DJONT and managers for certain hotels
have agreed to make loans to DJONT of up to an aggregate of approximately $17.3
million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 38
of the Hotels. No such loans were outstanding at June 30, 2000.
DJONT engages third-party managers to operate the Hotels leased by it and
generally pays such managers a base management fee based on a percentage of room
and suite revenue and an incentive management fee based on DJONT's income before
overhead expenses for each hotel. In certain instances, the hotel managers have
subordinated fees and are committed to make subordinated loans to DJONT, if
needed, to meet its rental and other obligations under the Percentage Leases.
Bristol serves as both the lessee and manager of 100 Hotels leased to it by
the Company at June 30, 2000, and, as such, is compensated for both roles
through the profitability of the Hotels, after meeting their operating expenses
and rental obligations under the Percentage Leases.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases, and is required
to maintain a minimum liquid net worth. A portion of this liquid net worth is
being satisfied through a letter of credit for the benefit of the Company. This
letter of credit is subject to periodic reductions upon satisfaction of certain
conditions and, at June 30, 2000, totaled $9.1 million.
7. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are
consistent with the Company's method of internal reporting, which segments its
business by Lessee. The Company's Lessees at June 30, 2000, were DJONT and
Bristol.
F-9
<PAGE> 144
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present information for the reportable segments for
the three and six months ended June 30, 2000 and 1999 for both DJONT and Bristol
(in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
-------------------------------- ------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................. $74,338 $ 62,717 $137,055 $ 810 $137,865
Net income (loss).............. $33,193 $(23,785) $ 9,408 $(41,711) $(32,303)
Funds from operations.......... $68,567 $ 57,197 $125,764 $(44,879) $ 80,885
Weighted average units
outstanding(1)............... 67,232
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
-------------------------------- ------- ------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................. $72,845 $62,114 $134,959 $ 228 $135,187
Net income (loss).............. $43,252 $33,233 $ 76,485 $(34,144) $ 42,341
Funds from operations.......... $65,385 $51,264 $116,649 $(36,266) $ 80,383
Weighted average units
outstanding(1)............... 76,029
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
------------------------------ -------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues............... $142,746 $119,237 $261,983 $ 2,687 $264,670
Net income (loss)............ $ 69,892 $ (1,059) $ 68,833 $(81,205) $(12,372)
Funds from operations........ $132,459 $104,459 $236,918 $(87,538) $149,380
Weighted average units
outstanding(1)............. 67,987
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
------------------------------ -------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues............... $146,901 $114,752 $261,653 $ 451 $262,104
Net income (loss)............ $ 87,200 $ 57,795 $144,995 $(64,587) $ 80,408
Funds from operations........ $131,827 $ 92,348 $224,175 $(69,943) $154,232
Weighted average units
outstanding(1)............. 76,008
</TABLE>
------------
(1) Weighted average units outstanding are computed including dilutive options,
unvested stock grants, and assuming conversion of Series A Preferred Units
to Units.
8. TREASURY STOCK REPURCHASE PROGRAM
On January 4, 2000, FelCor announced that its Board of Directors had
approved a stock repurchase program, authorizing FelCor to purchase up to an
aggregate of $200 million of its outstanding common shares. During the six
months ended June 30, 2000, FelCor had repurchased approximately 3.1 million
shares of FelCor common stock for approximately $56.7 million. This has been
recorded as a reduction to Partners' Capital as a result of the redemption of
units held by FelCor to fund the repurchase.
F-10
<PAGE> 145
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. BASS STOCK CONTRIBUTION
In connection with the efforts of Bass to acquire Bristol, a Bass
subsidiary (Bass America, Inc.) contributed 4,713,185 outstanding FelCor common
shares held by it to the Company in exchange for a like number of units on
February 28, 2000. This exchange did not affect the Company's FFO or earnings
per unit, although it resulted in reducing FelCor's percentage ownership in the
Company from approximately 95% to approximately 88%.
10. BUYBACK OF ASSUMED STOCK OPTIONS
In the second quarter of 2000 the Company purchased options covering an
aggregate of 349,443 shares of FelCor's Common Stock for approximately $1.9
million. The options were held by employees of Bristol Hotels & Resorts and were
issued in substitution for stock options previously granted by Bristol Hotel
Company that were outstanding at the time of its merger with FelCor in 1998. The
options so purchased and retired had exercise prices ranging from $10.33 to
$16.95 per share and the majority of these options were scheduled to vest in the
third quarter of 2000.
11. EARNINGS PER UNIT
The following table sets forth the computation of basic and diluted
earnings (loss) per unit for the three and six months ended June 30, 2000 and
1999 (in thousands, except per unit data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE JUNE
------------------ ------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) applicable to
unitholders............................. $(38,477) $36,157 $(24,730) $68,040
Denominator:
Denominator for basic earnings per unit --
weighted average units.................. 62,312 71,000 63,066 70,998
Effect of diluted securities:
Options................................. 273 271
Restricted units........................ 231 65 231 65
-------- ------- -------- -------
Denominator for diluted earnings per unit--
adjusted weighted average units and
assumed conversions..................... 62,543 71,338 63,297 71,334
======== ======= ======== =======
Earnings (loss) per unit data:
Basic...................................... $ (0.62) $ 0.51 $ (0.39) $ 0.96
Diluted.................................... $ (0.62) $ 0.51 $ (0.39) $ 0.95
</TABLE>
The Series A Preferred Units and most of the options granted are
anti-dilutive and not included in the calculation of diluted earnings per unit.
12. CONSOLIDATING FINANCIAL INFORMATION
Certain of the Company's wholly-owned subsidiaries (FelCor/CSS Holdings,
L.P.; FelCor/ CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels,
L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.; FHAC Nevada
Holdings, L.L.C.; FHAC Texas
F-11
<PAGE> 146
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings, L.P., FelCor Omaha Hotel Company, L.L.C., FelCor Country Villa Hotel,
L.L.C., FelCor Moline Hotel, L.L.C., FelCor Canada Co. and FelCor Hotel Asset
Company, L.L.C., collectively "Subsidiary Guarantors"), together with FelCor and
one of its wholly-owned subsidiaries (FelCor Nevada Holdings, L.L.C.), are
guarantors of senior debt. The following tables present consolidating
information for the Subsidiary Guarantors.
CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
properties.................. $ 593,248 $1,663,611 $1,539,896 $3,796,755
Investment in consolidated
entities.................... 2,814,305 (2,814,305)
Investment in unconsolidated
entities.................... 116,811 16,227 133,038
Assets held for sale.......... 4,582 118,510 12,555 135,647
Cash and cash equivalents..... 21,582 8,269 21,001 50,852
Due from Lessee............... 14,278 18,218 (3,898) 28,598
Due (to) from subsidiary...... (244,385) 263,404 (19,019)
Note receivable from
unconsolidated entity....... 7,728 7,728
Deferred assets............... 10,772 1,245 5,076 17,093
Other assets.................. 5,215 1,834 5 7,054
---------- ---------- ---------- ----------- ----------
Total assets......... $3,344,136 $2,091,318 $1,555,616 $(2,814,305) $4,176,765
========== ========== ========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt.......................... $1,117,360 $ 118,227 $ 647,156 $1,882,743
Distributions payable......... 35,237 35,237
Accrued expenses and other
liabilities................. 73,335 73,335
Deferred rent................. 2,068 7,771 8,765 18,604
Minority interest -- other
partnerships................ 50,710 50,710
---------- ---------- ---------- ----------- ----------
Total liabilities.... 1,228,000 125,998 706,631 -- 2,060,629
---------- ---------- ---------- ----------- ----------
Redeemable units, at
redemption value............ 151,948 151,948
Preferred Units............... 294,515 294,515
Partners' capital............. 1,669,673 1,965,320 848,985 (2,814,305) 1,669,673
---------- ---------- ---------- ----------- ----------
Total liabilities and
partners'
capital............ $3,344,136 $2,091,318 $1,555,616 $(2,814,305) $4,176,765
========== ========== ========== =========== ==========
</TABLE>
F-12
<PAGE> 147
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent........................... $ 55,332 $123,202 $ 77,801 $256,335
Equity in income from unconsolidated
entities............................. 4,933 715 5,648
Other revenue.......................... 2,687 2,687
-------- -------- -------- --------
Total revenue................ 62,952 123,917 77,801 264,670
-------- -------- -------- --------
Expenses:
General and administrative............. 1,319 2,937 1,856 6,112
Depreciation........................... 17,803 37,591 26,086 81,480
Taxes, insurance and other............. 7,480 15,292 13,105 35,877
Land leases............................ 965 9,491 1,255 11,711
Reserve for assets held for sale....... 6,170 53,200 3,630 63,000
Interest expense....................... 54,574 5,454 17,616 77,644
Minority interest other partnerships... 1,493 600 2,093
-------- -------- -------- --------
Total expenses............... 89,804 123,965 64,148 277,917
-------- -------- -------- --------
Net income (loss) before nonrecurring
items................................ (26,852) (48) 13,653 (13,247)
Gain on sale of assets................. 875 875
-------- -------- -------- --------
Net income (loss)...................... (26,852) 827 13,653 (12,372)
Preferred distributions................ 12,358 12,358
-------- -------- -------- --------
Net income (loss) applicable to
unitholders.......................... $(39,210) $ 827 $ 13,653 $(24,730)
======== ======== ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities.... $ 4,335 $ 90,052 $ 44,356 $138,743
Cash flows from (used in) investing (16,628) (10,827)
activities............................ (1,174) (28,629)
Cash flows from (used in) financing (77,573) (33,140)
activities............................ 15,328 (95,385)
------- -------- -------- --------
Change in cash and cash equivalents..... 18,489 (4,149) 389 14,729
Cash and cash equivalents at beginning 12,418 20,612
of period............................. 3,093 36,123
------- -------- -------- --------
Cash and cash equivalents at end of $ 8,269 $ 21,001
period................................ $21,582 $ 50,852
======= ======== ======== ========
</TABLE>
F-13
<PAGE> 148
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
On July 14, the Company entered into a binding sale contract to sell its
Embassy Suites hotel, Los Angeles International Airport-North, California (215
suites) for a gross price of approximately $24 million. The Company expects the
sale will close by the end of August 2000, and FelCor will record a gain on sale
of approximately $3 million, in the third quarter of 2000. This hotel is not
included in the 25 hotels held for sale.
On July 21, 2000, FelCor's Independent Directors approved the acquisition
of 100% of DJONT effective January 1, 2001. The purchase price is approximately
417,000 units of the Company.
On August 1, 2000, the Company renewed its Line of Credit. The Line of
Credit was reduced from $850 million to $600 million and the maturity was
extended from July 2001 to August 2003. The effective interest rate ranges from
87.5 basis points to 250 basis points above LIBOR depending on the Company's
leverage and corporate rating.
On September 15, 2000, the Company completed the private placement of $400
million in aggregate principal amount of its long-term senior unsecured notes.
The notes bear interest at 9 1/2% per annum, mature in 2008, and were priced at
98.633% to yield 9 3/4%.
F-14
<PAGE> 149
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000, THE TWELVE MONTHS ENDED
JUNE 30, 2000, AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 2000, the twelve months ended June 30, 2000, and
the year ended December 31, 1999 are based in part upon the Consolidated
Statements of Operations of FelCor Lodging Limited Partnership ("FelCor LP") for
the six months ended June 30, 2000, and the year ended December 31, 1999
included herein.
The Pro Forma Consolidated Statements of Operations for the six months
ended June 30, 2000, the twelve months ended June 30, 2000, and the year ended
December 31, 1999 assumes that all the following occurred on January 1, 1999:
(i) the issuance of $400 million of senior unsecured debt and the application of
the net proceeds, (ii) the completion of the financing transactions which
occurred in 2000, (iii) the repurchase by FelCor of $164.3 million of its common
stock through August 31, 2000, and (iv) the sale of 25 non-strategic hotels
identified in the second quarter of 2000.
In management's opinion, all material adjustments necessary to reflect the
effects of the foregoing transactions have been made. The following unaudited
pro forma consolidated statements of operations are not necessarily indicative
of what the actual results of operations of FelCor LP would have been assuming
such transactions had been completed as of January 1, 1999, nor do they purport
to represent the results of operations for future periods.
F-15
<PAGE> 150
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000,
AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
DEBT TRANSACTION
AND
STOCK REPURCHASE SENIOR
FELCOR LP COMPLETED THROUGH SALE OF UNSECURED
THE SIX MONTHS ENDED JUNE 30, HISTORICAL AUGUST 31, 2000 25 HOTELS DEBT PRO FORMA
2000 (A) (B) (C) (D) TOTAL
----------------------------- ---------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue... $256,335 $(11,232) $245,103
Equity in income of
unconsolidated
entities................. 5,648 5,648
Other revenue.............. 2,687 2,687
-------- ------- -------- ------- --------
Total revenue....... 264,670 (11,232) 253,438
-------- ------- -------- ------- --------
Expenses:
General and
administrative........... 6,112 6,112
Land Leases................ 11,711 (21) 11,690
Reserve for assets held for
sale..................... 63,000 (63,000)
Depreciation............... 81,480 (3,668) 77,812
Taxes, insurance and
other.................... 35,877 (1,687) 34,190
Interest................... 77,644 $ 2,350(E) (5,359) $ 2,221(F) 76,856
Minority interest in other
partnerships............. 2,093 2,093
-------- ------- -------- ------- --------
Total expenses...... 277,917 2,350 (73,735) 2,221 208,753
-------- ------- -------- ------- --------
Net income (loss) before
nonrecurring items......... (13,247) (2,350) 62,503 (2,221) 44,685
Gain on sale of land......... 875 875
-------- ------- -------- ------- --------
Net income (loss)............ (12,372) (2,350) 62,503 (2,221) 45,560
Preferred dividends.......... 12,358 12,358
-------- ------- -------- ------- --------
Net income (loss) applicable
to unitholders............. $(24,730) $(2,350) $ 62,503 $(2,221) $ 33,202
======== ======= ======== ======= ========
Diluted per unit data:
Net income applicable to
unitholders........... $ (0.39) $ 0.54
======== ========
Weighted average units
outstanding........... 63,297 (1,501)(G) 61,796
======== ======= ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-16
<PAGE> 151
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000,
AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
DEBT
TRANSACTIONS
AND STOCK
FELCOR LP FELCOR LP REPURCHASE
SIX MONTHS SIX MONTHS COMPLETED
ENDED ENDED THROUGH SENIOR
JUNE 30, DECEMBER 31, AUGUST 31, SALE OF UNSECURED
THE TWELVE MONTHS ENDED 2000 1999 2000 25 HOTELS DEBT PRO FORMA
JUNE 30, 2000 (A) (A) (B) (C) (D) TOTAL
----------------------- ---------- ------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue...... $256,335 $234,011 $(21,967) $468,379
Equity in income of
unconsolidated entities..... 5,648 4,647 10,295
Other revenue................. 2,687 3,239 5,926
-------- -------- -------- --------
Total revenue........... 264,670 241,897 (21,967) 484,600
-------- -------- -------- --------
Expenses:
General and administrative.... 6,112 4,369 10,481
Land leases................... 11,711 9,073 (45) 20,739
Reserve for assets held for
sale........................ 63,000 (63,000)
Depreciation.................. 81,480 78,786 (7,193) 153,073
Taxes, insurance and other.... 35,877 27,200 (3,213) 59,864
Interest...................... 77,644 66,263 $ 10,551(E) (10,556) $ 6,023(F) 149,925
Minority interest in other
partnerships................ 2,093 1,074 3,167
-------- -------- -------- -------- ------- --------
Total expenses.......... 277,917 186,765 10,551 (84,007) 6,023 397,249
-------- -------- -------- -------- ------- --------
Net income (loss) before
nonrecurring items............ (13,247) 55,132 (10,551) 62,040 (6,023) 87,351
Gain on sale of assets.......... 875 236 1,111
-------- -------- -------- -------- ------- --------
Net income (loss)............... (12,372) 55,368 (10,551) 62,040 (6,023) 88,462
Preferred dividends............. 12,358 12,367 24,725
-------- -------- -------- -------- ------- --------
Net income (loss) applicable to
unitholders................... $(24,730) $ 43,001 $(10,551) $ 62,040 $(6,023) $ 63,737
======== ======== ======== ======== ======= ========
Diluted per unit data:
Net income applicable to
unitholders............... $ (0.39) $ 0.62 $ 1.03
======== ======== ========
Weighted average units
outstanding............... 63,297 69,775 (1,573)(F) 61,724
======== ======== ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-17
<PAGE> 152
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000,
AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
DEBT TRANSACTIONS
AND
STOCK
REPURCHASE
COMPLETED
THROUGH
FELCOR LP AUGUST 31, SALE OF SENIOR UNSECURED
THE YEAR ENDED HISTORICAL 2000 25 HOTELS DEBT PRO FORMA
DECEMBER 31, 1999 (A) (B) (C) (D) TOTAL
----------------- ---------- ----------------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Percentage lease
revenue................ $490,893 $(23,116) $467,777
Equity in income of
unconsolidated
entities............... 8,484 8,484
Other revenue............ 4,624 4,624
-------- -------- --------
Total revenue..... 504,001 (23,116) 480,885
-------- -------- --------
Expenses:
General and
administrative......... 9,122 9,122
Depreciation............. 152,948 (6,765) 146,183
Taxes, insurance and
other.................. 59,572 (3,256) 56,316
Land Leases.............. 17,558 (42) 17,516
Interest................. 125,435 $ 16,922(E) (10,145) $ 9,215(F) 141,427
Minority interest in
other partnerships..... 2,713 2,713
-------- -------- -------- -------- --------
Total expenses.... 367,348 16,922 (20,208) 9,215 373,277
-------- -------- -------- -------- --------
Net income before
nonrecurring item........ 136,653 (16,922) (2,908) (9,215) 107,608
Gain on sale of assets..... 236 236
-------- -------- -------- -------- --------
Net income................. 136,889 (16,922) (2,908) (9,215) 107,844
Preferred dividends........ 24,735 24,735
-------- -------- -------- -------- --------
Net income applicable to
unitholders.............. $112,154 $(16,922) $ (2,908) $ (9,215) $ 83,109
======== ======== ======== ======== ========
Diluted per unit data:
Net income applicable
to unitholders....... $ 1.59 $ 1.34
======== ========
Weighted average units
outstanding.......... 70,561 (8,656)(G) 61,905
======== ======== ======== ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-18
<PAGE> 153
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000, THE TWELVE MONTHS ENDED
JUNE 30, 2000 AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(A) Represents FelCor LP's historical results of operations, excluding
extraordinary charges from the write off of deferred financing fees.
(B) Represents adjustment to FelCor LP's historical results of operations
assuming that (i) the debt transactions completed in 2000, which include
placement of $330.6 million of mortgage debt and renewal of the Company's
Line of Credit and (ii) the $164.3 million repurchase by FelCor of its
common stock through August 31, 2000, had occurred as of January 1, 1999.
(C) Represents the historical results of operations for the 25 non-strategic
hotels that the Company has announced its intent to sell. The reduction in
interest expense reflects the repayment of $5 million in mortgage debt, and
of $131 million borrowed under our line of credit, from the net proceeds of
the sale of the 25 hotels. The interest rate used to calculate the pro
forma interest on the Line of Credit during the periods presented is the
applicable historical rate under the Line of Credit during the periods.
(D) Represents adjustment to FelCor LP's historical results of operations
assuming the completion of the issuance of the $400 million senior
unsecured debt.
(E) Represents pro forma interest expense based on (i) $330.6 million of
mortgage debt borrowed in 2000 and used to paydown the Line of Credit and
(ii) $164.3 million of FelCor's common stock repurchased through August 31,
2000. The interest rates used to calculate pro forma interest expense on
the mortgage debt borrowed in 2000 are the actual rates for the new
mortgage notes, of 8.73% and 8.70%. The rate for the paydown on the Line of
Credit is the historical rate on the Line of Credit during the periods
presented. The interest rate used to calculate pro forma interest on the
$164.3 million stock repurchase is the historical rate on the Line of
Credit during the periods presented adjusted to reflect the August 2000
renewal of the Line of Credit.
(F) Represents pro forma interest expense on the $400 million of senior
unsecured debt after using the net proceeds to repay a $374 million term
loan and to reduce borrowings under the Line of Credit. The interest rates
used to calculate pro forma interest expense are 9.50% for the senior
unsecured debt and historical rates on the term loan and Line of Credit for
the periods presented.
(G) Represents the units retired associated with the number of shares of FelCor
common stock which had been repurchased through August 31, 2000.
F-19
<PAGE> 154
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
The following unaudited Pro Forma Consolidated Balance Sheet as of June 30,
2000 is based in part on the Consolidated Balance Sheet of FelCor LP included
herein.
The Pro Forma Consolidated Balance Sheet assumes the completion of (i) the
$400 million of senior unsecured debt, subsequent payoff of a $374 million term
loan and paydown of the Line of Credit, (ii) the repurchase by FelCor of $9.2
million of its common stock between July 1, 2000 and August 31, 2000 funded from
its Line of Credit and (iii) the sale of 25 non-strategic hotels identified in
the second quarter of 2000.
In management's opinion, all material adjustments necessary to reflect the
effects of the foregoing transaction have been made. The following unaudited
consolidated balance sheet is not necessarily indicative of what the actual
financial position would have been assuming such transactions had been completed
as of June 30, 2000, nor does it purport to represent the future financial
position of FelCor LP.
F-20
<PAGE> 155
FELCOR LODGING LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FELCOR LP
HISTORICAL PRO FORMA
(A) ADJUSTMENTS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Net investment in hotels...................... $3,796,755 $3,796,755
Investment in unconsolidated entities......... 133,038 133,038
Assets held for sale.......................... 135,647 (135,647)(B)
Cash and cash equivalents..................... 50,852 50,852
Due from Lessees.............................. 28,598 28,598
Note receivable from unconsolidated entity.... 7,728 7,728
Deferred expenses, net........................ 17,093 8,929(C) 26,022
Other assets.................................. 7,054 7,054
---------- --------- ----------
Total assets........................ $4,176,765 $(126,718) $4,050,047
========== ========= ==========
LIABILITIES AND PARTNERS' EQUITY
Debt and capital lease obligations............ $1,882,743 $(114,050)(D) $1,768,693
Distributions payable......................... 35,237 35,237
Accrued expenses and other liabilities........ 73,335 73,335
Deferred rent................................. 18,604 18,604
Minority interest in other partnerships....... 50,710 50,710
---------- --------- ----------
Total liabilities................... 2,060,629 (114,050) 1,946,579
---------- --------- ----------
Partners' equity:
Redeemable units............................ 151,948 151,948
Series A Cumulative Preferred Units......... 150,765 150,765
Series B Redeemable Preferred Units......... 143,750 143,750
Partners' capital........................... 1,669,673 (12,668)(E) 1,657,005
---------- --------- ----------
Total liabilities and partners'
equity............................ $4,176,765 $(126,718) $4,050,047
========== ========= ==========
</TABLE>
See notes to pro forma consolidated balance sheet.
F-21
<PAGE> 156
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED, IN THOUSANDS)
(A) Represents the historical consolidated balance sheet of FelCor LP as of
June 30, 2000.
(B) Represents the pro forma change in assets held for sale to reflect the sale
of 25 hotels.
(C) Represents the estimated costs of the $400 million senior unsecured debt of
$12.4 million which are capitalized and amortized over the term of the debt
after write off of unamortized loan costs of $3.4 million associated with
the term loan.
(D) Represents the pro forma change in debt from, (i) placement of $400 million
senior unsecured notes with net proceeds of $388 million used to repay a
$374 million term and the balance used to reduce borrowings under the Line
of Credit, (ii) the repurchase by FelCor of $9.2 million of its common
stock from July 1, 2000 through August 31, 2000 funded from the Line of
Credit, and (iii) the net proceeds of the sale of 25 hotels of $136
million, used to repay $5 million in mortgage debt associated with these
hotels and $131 million to reduce borrowings under the Line of Credit.
(E) Represents the actual repurchase of $9.2 million of FelCor's common stock
from July 1, 2000 through August 31, 2000 and the writeoff of unamortized
deferred loan costs associated with the $374 million term loan repaid from
the proceeds of the senior unsecured debt.
F-22
<PAGE> 157
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Lodging Trust Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, partners' capital and cash flows
present fairly, in all material respects, the financial position of FelCor
Lodging Limited Partnership at December 31, 1999 and 1998, and the consolidated
results of operations and cash flows for the years ended December 31, 1999, 1998
and 1997, respectively, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 1, 2000,
except as to the information in Notes 18 and 19,
for which the date is September 15, 2000.
F-23
<PAGE> 158
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investment in hotels, net of accumulated depreciation of
$330,555 in 1999 and $178,072 in 1998..................... $4,035,344 $3,955,582
Investment in unconsolidated entities....................... 136,718 140,299
Cash and cash equivalents................................... 36,123 34,692
Due from Lessees............................................ 18,394 18,968
Note receivable from unconsolidated entity.................. 7,760 7,766
Deferred expenses, net of accumulated amortization of $4,491
in 1999 and $2,096 in 1998................................ 15,473 10,041
Other assets................................................ 5,939 8,035
---------- ----------
Total assets...................................... $4,255,751 $4,175,383
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt, net of discount of $1,401 in 1999 and $1,628 in
1998...................................................... $1,833,954 $1,594,734
Distributions payable....................................... 39,657 67,262
Accrued expenses and other liabilities...................... 65,480 57,312
Minority interest in other partnerships..................... 51,671 51,105
---------- ----------
Total liabilities................................. 1,990,762 1,770,413
---------- ----------
Commitments and contingencies (Notes 6 and 11)
Redeemable units at redemption value........................ 52,338 67,595
Preferred units:
Series A Cumulative Preferred Units, 6,050 units issued
and outstanding........................................ 151,250 151,250
Series B Redeemable Preferred Units, 58 units issued and
outstanding............................................ 143,750 143,750
Partners' Capital........................................... 1,917,651 2,042,375
---------- ----------
Total liabilities and partners' capital........... $4,255,751 $4,175,383
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 159
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue............................... $490,893 $328,035 $169,114
Equity in income from unconsolidated entities.......... 8,484 7,017 6,963
Other revenue.......................................... 4,624 4,565 574
-------- -------- --------
Total revenues............................... 504,001 339,617 176,651
-------- -------- --------
Expenses:
General and administrative............................. 9,122 5,254 3,743
Depreciation........................................... 152,948 90,835 50,798
Taxes, insurance and other............................. 59,572 37,158 21,483
Land leases............................................ 17,558 8,130 1,610
Interest expense....................................... 125,435 73,182 28,792
Minority interest in other partnerships................ 2,713 1,121 573
-------- -------- --------
Total expenses............................... 367,348 215,680 106,999
-------- -------- --------
Income before nonrecurring items....................... 136,653 123,937 69,652
Gain on sale of hotels, net............................ 236 477
Extraordinary charge from write off of deferred
financing fees....................................... 1,113 3,075 185
-------- -------- --------
Net income............................................. 135,776 121,339 69,467
Preferred distributions................................ 24,735 21,423 11,797
-------- -------- --------
Net income applicable to unitholders................... $111,041 $ 99,916 $ 57,670
======== ======== ========
Per unit data:
Basic:
Income applicable to unitholders before
extraordinary charge............................ $ 1.59 $ 1.95 $ 1.70
Extraordinary charge.............................. (0.01) (0.06) (0.01)
-------- -------- --------
Net income applicable to unitholders.............. $ 1.58 $ 1.89 $ 1.69
======== ======== ========
Weighted average units outstanding................ 70,372 52,978 34,126
Diluted:
Income applicable to unitholders before
extraordinary charge............................ $ 1.59 $ 1.93 $ 1.68
Extraordinary charge.............................. (0.02) (0.06) (0.01)
-------- -------- --------
Net income applicable to unitholders.............. $ 1.57 $ 1.87 $ 1.67
======== ======== ========
Weighted average units outstanding................ 70,561 53,323 34,467
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 160
FELCOR LODGING LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<S> <C>
Balance, December 31, 1996.................................. $ 468,247
Contributions............................................. 449,591
Distributions............................................. (90,249)
Allocations from redeemable units......................... 710
Net income................................................ 69,467
----------
Balance, December 31, 1997.................................. 897,766
Contributions............................................. 1,147,739
Distributions............................................. (166,580)
Allocations from redeemable units......................... 42,111
Net income................................................ 121,339
----------
Balance, December 31, 1998.................................. 2,042,375
Contributions............................................. 583
Redemption of units....................................... (98,387)
Distributions............................................. (179,185)
Allocations from redeemable units......................... 16,489
Net income................................................ 135,776
----------
Balance..................................................... $1,917,651
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 161
FELCOR LODGING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 135,776 $ 121,339 $ 69,467
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of assets....................... (236) (477)
Depreciation................................. 152,948 90,835 50,798
Amortization of deferred financing fees and
organization costs......................... 1,816 1,985 1,468
Amortization of unearned officers' and
directors' compensation.................... 652 830 1,017
Equity in income from unconsolidated
entities................................... (8,484) (7,017) (6,963)
Extraordinary charge for write off of
deferred financing fees.................... 1,113 3,075 185
Minority interest in other partnerships...... 2,713 1,121 573
Changes in assets and liabilities, net of
effects of acquisitions:
Due from Lessees............................. 574 (3,035) (13,382)
Deferred financing fees...................... (9,313) (4,348) (8,825)
Other assets................................. (282) (602) (1,175)
Accrued expenses and other liabilities....... 5,088 (11,123) 4,315
---------- ---------- ---------
Net cash flow provided by operating
activities............................ 282,365 192,583 97,478
---------- ---------- ---------
Cash flows used in investing activities:
Acquisition of hotels........................... (10,802) (326,276) (574,100)
Acquisition of unconsolidated entities.......... (7,452) (4,230) (65,271)
Improvements and additions to hotels............ (222,320) (119,107) (52,700)
Note receivable from unconsolidated entity...... (7,766)
Bristol interim credit facility................. (120,000)
Sale of hotels.................................. 15,476 7,815
Cash distributions from unconsolidated
entities..................................... 19,581 19,066 4,211
---------- ---------- ---------
Net cash flow used in investing
activities............................ (205,517) (550,498) (687,860)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from borrowings........................ 1,034,667 1,013,003 679,144
Repayment of borrowings......................... (804,915) (658,524) (445,900)
Proceeds from sale of preferred units........... 139,063
Purchase of treasury stock...................... (98,387)
Contributions................................... 8 3,884 448,586
Distributions paid to unitholders............... (180,803) (105,425) (69,901)
Dividends paid to preferred unitholders......... (25,987) (16,937) (11,797)
---------- ---------- ---------
Net cash flow provided by (used in)
financing activities.................. (75,417) 375,064 600,132
---------- ---------- ---------
Net change in cash and cash equivalents........... 1,431 17,149 9,750
Cash and cash equivalents at beginning of years... 34,692 17,543 7,793
---------- ---------- ---------
Cash and cash equivalents at end of years......... $ 36,123 $ 34,692 $ 17,543
========== ========== =========
Supplemental cash flow information --
interest paid................................... $ 125,085 $ 72,215 $ 21,414
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 162
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Lodging Limited Partnership and its subsidiaries (the "Company") at
December 31, 1999, owned interests in 188 hotels with nearly 50,000 rooms and
suites (collectively the "Hotels"). The sole general partner of the Company is
FelCor Lodging Trust Incorporated ("FelCor"), one of the nation's largest hotel
real estate investment trusts, ("REIT"). At December 31, 1999, FelCor owned a
greater than 95% equity interest in the Company. The Company owns 100% of the
interest in 163 of the Hotels, a 90% or greater interest in entities owning
seven hotels, a 60% interest in an entity owning two hotels and 50% interests in
separate entities that own 16 hotels.
The Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels
in the world. The following table provides a schedule of the Hotels, by brand,
operated by each of the Company's Lessees at December 31, 1999:
<TABLE>
<CAPTION>
NOT OPERATED
BRAND DJONT BRISTOL UNDER A LEASE TOTAL
----- ----- ------- ------------- -----
<S> <C> <C> <C> <C>
Embassy Suites................................ 58 58
Holiday Inn................................... 43 1 44
Doubletree and Doubletree Guest Suites(R)..... 16(1) 16
Crowne Plaza and Crowne Plaza Suites(R)....... 18 18
Holiday Inn Select(R)......................... 10 10
Sheraton(R) and Sheraton Suites(R)............ 9 1(2) 10
Hampton Inn(R)................................ 9 9
Holiday Inn Express(R)........................ 5 5
Fairfield Inn(R).............................. 5 5
Harvey Hotel(R)............................... 4 4
Independents.................................. 2 1 3
Courtyard by Marriott(R)...................... 2 2
Four Points by Sheraton(R).................... 1 1
Hilton Suites(R).............................. 1 1
Homewood Suites(R)............................ 1 1
Westin(R)..................................... 1 1
-- --- -- ---
Total Hotels........................ 85 100 3 188
== === == ===
</TABLE>
------------
(1) On January 1, 2000, two of these Doubletree Guest Suites hotels were
converted to the Embassy Suites brand.
(2) On January 1, 2000, a lease on this hotels became effective between the
Company and DJONT.
The Hotels are located in the United States (35 states) and Canada, with a
concentration in California (20 hotels), Florida (18 hotels), Georgia (15
hotels) and Texas (41 hotels). The
F-28
<PAGE> 163
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
following table provides information regarding the net acquisition and
disposition of hotels through December 31, 1999:
<TABLE>
<CAPTION>
NET HOTELS ACQUIRED/
(DISPOSED OF)
--------------------
<S> <C>
1994........................................... 7
1995........................................... 13
1996........................................... 23
1997........................................... 30
1998........................................... 120
1999........................................... (5)
---
188
===
</TABLE>
At December 31, 1999, the Company leased 85 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company, or a consolidated
subsidiary thereof (collectively "DJONT"), and leased 100 of the Hotels to
Bristol Hotels & Resorts, or a consolidated subsidiary thereof ("Bristol" and,
together with DJONT, the "Lessees"). Three Hotels were operated without a lease.
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. At December 31, 1999, DJONT had entered into management agreements
pursuant to which 72 of the Hotels leased by it were managed by subsidiaries of
Hilton Hotels Corporation ("Hilton"), ten were managed by subsidiaries of
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), and three were managed
by two unrelated management companies.
Bristol, an independent publicly owned company, at December 31, 1999,
leased and managed 100 Hotels and managed one hotel which operated without a
lease. Bristol is one of the largest independent hotel operating companies in
North America and operates the largest number of Bass Hotels & Resorts-branded
hotels in the world.
Certain reclassifications have been made to prior period financial
information to conform to the current period's presentation with no effect to
previously reported net income or shareholder's equity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its consolidated subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Investment in Hotels -- Hotels are stated at cost and are depreciated using
the straight-line method over estimated useful lives ranging from 31 to 40 years
for buildings and improvements and three to seven years for furniture, fixtures,
and equipment.
F-29
<PAGE> 164
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company periodically reviews the carrying value of each Hotel to
determine if circumstances exist indicating an impairment in the carrying value
of the investment in the hotel or that depreciation periods should be modified.
If facts or circumstances support the possibility of impairment, the Company
will prepare a projection of the undiscounted future cash flows, without
interest charges, of the specific hotel and determine if the investment in such
hotel is recoverable based on the undiscounted future cash flows. If impairment
is indicated, an adjustment will be made to the carrying value of the hotel
based on discounted future cash flows. The Company does not believe that there
are any factors or circumstances indicating impairment of any of its investment
in the Hotels.
Maintenance and repairs are charged to the Lessees' operations as incurred;
major renewals and betterments by the Company are capitalized. Upon the sale or
disposition of a fixed asset, the asset and related accumulated depreciation are
removed from the accounts and the related gain or loss is included in
operations.
Investment in Unconsolidated Entities -- The Company owns a 50% interest in
various partnerships or limited liability companies in which the partners
jointly make all material decisions concerning the business affairs and
operations. The Company also owns a 97% nonvoting interest in an entity.
Accordingly, the Company does not control these entities and carries its
investment in unconsolidated entities at cost, plus its equity in net earnings,
less distributions received since the date of acquisition. Equity in net
earnings is adjusted for the straight-line amortization, over a 40-year period,
of the difference between the Company's cost and its proportionate share of the
underlying net assets at the date of acquisition.
Cash and Cash Equivalents -- All highly liquid investments with a maturity
of three months or less when purchased are considered to be cash equivalents.
Deferred Expenses -- Deferred expenses are recorded at cost. Amortization
is computed using the interest method over the maturity of the related debt.
Revenue Recognition -- Percentage lease revenue is reported as income over
the lease term as it becomes receivable from the Lessees according to the
provisions of the Percentage Lease agreements. The Lessees are in compliance
with their rental obligations under the Percentage Leases.
Capitalized Interest -- The Company capitalizes interest and certain other
costs relating to hotels undergoing major renovations and redevelopments. Such
costs capitalized in 1999 and 1998 were approximately $7.4 million and $5.9
million, respectively.
Net Income Per Unit -- Basic earnings per unit have been computed by
dividing net income by the weighted average number of units outstanding. Diluted
earnings per unit have been computed by dividing net income by the weighted
average number of units and equivalents outstanding. Unit equivalents represent
units issuable upon exercise of FelCor stock options and unvested officers'
restricted FelCor stock grants.
At December 31, 1999, 1998, and 1997, the Company's Series A Cumulative
Preferred Units, if converted to units, would be antidilutive; accordingly the
Series A Cumulative Preferred Units are not assumed to be converted in the
computation of diluted earnings per unit.
Distributions -- The Company pays regular quarterly distributions on its
Units. Additionally, the Company pays regular quarterly distributions on
preferred units in accordance with its preferred units distribution
requirements.
F-30
<PAGE> 165
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For 1999 The Company paid distributions of $2.20 per unit, $1.95 per unit
of Series A Cumulative Preferred Units ("Series A Preferred Units"), and $2.25
per depositary share evidencing Series B Redeemable Preferred Units ("Series B
Preferred Units").
Income Taxes -- No provision for federal income taxes has been reflected in
the financial statements because all taxable income or loss, or tax credits are
passed through to the partners.
3. BRISTOL MERGER
On July 28, 1998, FelCor completed the merger of Bristol Hotel Company's
real estate holdings with and into FelCor (the "Merger"). The Merger resulted in
the net acquisition of 107 primarily full-service hotels which were contributed
to the Company in return for approximately 31.0 million units.
A summary of the fair values of the assets and liabilities acquired in the
Merger, recorded at the date of acquisition, is as follows (in thousands):
<TABLE>
<S> <C>
Investment in hotels................................. $2,014,250
Investment in unconsolidated entity.................. 16,839
Other assets......................................... 4,151
----------
2,035,240
----------
Common stock issued.................................. 1,146,081
Debt obligations assumed............................. 868,615
Accrued expenses and other liabilities assumed....... 55,297
----------
2,069,993
----------
Total cash received in Merger.............. $ 34,753
==========
</TABLE>
The Merger has been accounted for as a purchase, and, accordingly, the
results of operations since the date of acquisition are included in the
Company's consolidated statements of operations.
4. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1999 and 1998, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land.................................................... $ 346,862 $ 328,591
Building and improvements............................... 3,616,269 3,470,854
Furniture, fixtures and equipment....................... 383,931 300,501
Construction in progress................................ 18,837 33,708
---------- ----------
4,365,899 4,133,654
Accumulated depreciation................................ (330,555) (178,072)
---------- ----------
$4,035,344 $3,955,582
========== ==========
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
At December 31, 1999, the Company owned 50% interests in separate entities
owning 16 hotels, a parcel of undeveloped land, and a condominium management
company. The Company
F-31
<PAGE> 166
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
also owned a 97% nonvoting interest in an entity that is developing condominiums
for sale and that owns an annex to a hotel owned by the Company. The Company
accounts for its investments in these unconsolidated entities under the equity
method.
Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels..................................... $337,444 $269,881
Non-recourse mortgage debt............................... 254,668 176,755
Equity................................................... 101,120 105,347
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statements of operations information:
Total revenues................................... $69,146 $57,006 $54,000
Net income....................................... $21,726 $17,438 $17,044
Net income attributable to the Company........... $10,626 $ 8,719 $ 8,522
Amortization of cost in excess of book value..... (2,142) (1,702) (1,559)
------- ------- -------
Equity in income from unconsolidated entities.... $ 8,484 $ 7,017 $ 6,963
======= ======= =======
</TABLE>
6. DEBT
Debt at December 31, 1999 and 1998, consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
COLLATERAL INTEREST RATE MATURITY DATE 1999 1998
---------- ------------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Floating Rate Debt:
Line of credit.............. (a) LIBOR + 163bp June 2001 $ 351,000 $ 411,000
Senior term loan............ (a) LIBOR + 250bp March 2004 250,000
Term loan................... Unsecured LIBOR + 150bp December 1999 250,000
Mortgage debt............... 3 hotels LIBOR + 200bp February 2003 62,553
Other....................... Unsecured Up to LIBOR + 200bp Various 32,282 34,750
---------- ----------
Total floating rate
debt................ 695,835 695,750
---------- ----------
Fixed Rate Debt:
Line of credit -- swapped... (a) 7.17-7.56% March 2000-2001 313,000 325,000
Publicly-traded term
notes..................... (a) 7.38% October 2004 174,377 174,249
Publicly-traded term
notes..................... (a) 7.63% October 2007 124,221 124,122
Mortgage debt............... 15 hotels 7.24% November 2022 142,542 145,062
Senior term loan --
swapped................... (a) 8.30% March 2000-2004 125,000
Mortgage debt............... 3 hotels 6.97% December 2002 43,836
Mortgage debt............... 7 hotels 7.54% April 2009 99,075
Mortgage debt............... 6 hotels 7.55% June 2009 74,483
Other....................... 13 hotels 6.96%-7.23% 2000-2005 85,421 86,715
---------- ----------
Total fixed rate
debt................ 1,138,119 898,984
---------- ----------
Total debt............ $1,833,954 $1,594,734
========== ==========
</TABLE>
------------
(a) Collateralized by stock and partnership interests in certain subsidiaries
of FelCor.
F-32
<PAGE> 167
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 4, 1999 the Company completed a $63 million first mortgage term
loan ("Mortgage Loan"). The Mortgage Loan is collateralized by three hotels,
bears interest at 200 basis points over LIBOR, matures in February 2003 and
amortizes over 25 years. The proceeds from this loan were used to pay off a $44
million mortgage loan due December 2002 and to acquire ownership of land
previously held under ground leases.
On April 1, 1999, the Company entered into a $375 million term loan ("the
Senior Term Loan") increasing its credit facilities to $1.2 billion, consisting
of the Senior Term Loan which matures in March 2004 and an $850 million
revolving line of credit ("Line of Credit") which matures in June 2001. The Line
of Credit, Senior Term Loan and the Company's publicly traded term notes are
collateralized by stock and partnership interests in certain subsidiaries of
FelCor. The financial covenants in the Senior Term Loan are consistent with
those in the Company's existing Line of Credit. If the Company achieves
investment grade credit ratings from the applicable rating agencies, or when the
Senior Term Loan is retired, the stock and partnership interest collateral will
be released. The proceeds of the Senior Term Loan were used to prepay a $250
million term loan, which was to mature on December 31, 1999, and initially to
reduce borrowings under the Company's Line of Credit. Interest payable on
borrowings under the credit facilities is variable, determined from a ratings
and leverage-based pricing matrix, ranging from 87.5 basis points to 275 basis
points above LIBOR (30-day LIBOR at December 31, 1999, was 5.83%). The interest
rate spread on the Line of Credit ranged from 150 to 162.5 basis points in 1999.
Additionally, the Company is required to pay an unused commitment fee on the
Line of Credit which is variable, determined from a ratings-based pricing
matrix, ranging from 20 to 30 basis points. In 1999 and 1998, the Company wrote
off approximately $1.1 million and $2.5 million, respectively, of deferred
financing fees relating to the term loan of $250 million and the previous
unsecured credit facility of $550 million, respectively. For the years ended
December 31, 1999, 1998, and 1997, the Company paid interest on its unsecured
credit facilities at weighted average interest rates of 7.1%, 7.1%, and 7.6%,
respectively. At December 31, 1999, the Company had borrowing capacity under its
Line of Credit of $186 million.
On April 1, 1999, the Company also closed a 10-year, $100 million mortgage
loan (the "April 1999 First Mortgage Term Loan"). The April 1999 First Mortgage
Term Loan is non-recourse (with certain exceptions), is collateralized by seven
Embassy Suites hotels, carries a fixed rate coupon of 7.54%, matures in April
2009 and amortizes over 25 years. The proceeds from this loan were used
initially to reduce outstanding borrowings under the Company's Line of Credit.
On May 13, 1999, the Company closed a 10-year, $75 million mortgage loan.
This loan is non-recourse (with certain exceptions), is collateralized by six
Embassy Suites hotels, carries a fixed rate coupon of 7.55%, matures in June
2009 and amortizes over 25 years. The proceeds from this loan were used
initially to reduce outstanding borrowings under the Company's Line of Credit.
The Line of Credit and the Senior Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At December 31, 1999, the Company was in compliance with all
such covenants.
The Company's other borrowings contain affirmative and negative covenants
that are generally equal to or less restrictive than the Line of Credit and
Senior Term Loan. Most of the mortgage debt is non-recourse to the Company (with
certain exceptions) and contain
F-33
<PAGE> 168
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisions allowing for the substitution of collateral upon satisfaction of
certain conditions. Most of the mortgage debt is prepayable; subject, however,
to various prepayment, yield maintenance, or defeasance obligations.
Future scheduled principal payments on debt obligations at December 31,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
2000.................................................. $ 42,608
2001.................................................. 684,588
2002.................................................. 9,622
2003.................................................. 90,768
2004.................................................. 559,306
2005 and thereafter................................... 448,463
----------
1,835,355
Discount accretion over term.......................... (1,401)
----------
$1,833,954
==========
</TABLE>
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its Line of
Credit and Senior Term Loan without an exchange of the underlying principal
amount and effectively convert variable rate debt to a fixed rate. The fixed
rates to be paid, the effective fixed rate, and the variable rate to be received
by the Company at December 31, 1999, are summarized in the following table:
<TABLE>
<CAPTION>
EFFECTIVE
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE DECEMBER 31, 1999 MATURITY
--------------- ------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C>
$113 million.............. 5.9300% 7.5550% 7.7450% March 2000
$ 75 million.............. 5.9375% 7.5625% 7.7450% March 2000
$ 25 million.............. 5.5750% 7.1830% 8.1013% July 2001
$ 25 million.............. 5.5480% 7.1730% 8.1013% July 2001
$ 75 million.............. 5.5550% 7.1800% 8.1013% July 2001
$100 million.............. 5.7955% 8.2960% 8.9763% July 2003
$ 25 million.............. 5.8260% 8.3260% 8.9763% July 2003
--------------------------
$438 million
==========================
</TABLE>
The differences to be paid or received by the Company under the terms of
the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company, pursuant to the
terms of its interest rate agreement, and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk in that
the counterparties may be unable to meet the terms of the agreement. The Company
minimizes that risk by evaluating the creditworthiness of its counterparties,
who are limited to major banks and financial institutions, and does not
anticipate nonperformance by the counterparties.
F-34
<PAGE> 169
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosures
about the fair value for all financial instruments, whether or not recognized,
for financial statement purposes. Disclosures about fair value of financial
instruments are based on pertinent information available to management as of
December 31, 1999. Considerable judgement is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Management estimates the fair value of (i) accounts receivable, accounts
payable and accrued expenses approximate carrying value due to the relatively
short maturity of these instruments; (ii) the note receivable approximates
carrying value based upon effective borrowing rates for issuance of debt with
similar terms and remaining maturities; (iii) the borrowings under the Line of
Credit, Senior Term loan and various other mortgage notes approximate carrying
value because these borrowings accrue interest at floating interest rates based
on market. The estimated fair value of the Company's fixed rate debt of $700
million is $568 million at December 31, 1999, based on current market interest
rates estimated by the Company for similar debt with similar maturities.
The Company manages its debt portfolio by using interest rate swaps to
achieve an overall desired position of fixed and floating rates. The fair value
of interest rate hedge contracts is estimated based on quotes from the market
makers of these instruments and represents the estimated amounts the Company
would expect to receive or pay to terminate the contracts. Credit and market
risk exposures are limited to the net interest differentials. The estimated
unrealized net gain on these instruments was approximately $6.3 million at
December 31, 1999, which represents the amount the Company would receive to
terminate the agreements based on current market rates.
8. REDEEMABLE OPERATING PARTNERSHIP UNITS AND PREFERRED UNITS
The outstanding units of limited partnership interest in the Company
("Units") are redeemable at the option of the holder for a like number of shares
of common stock of FelCor, or cash, or a combination thereof, at the election of
FelCor. Due to these redemption rights, these limited partnership units have
been excluded from partners' capital and are included in redeemable units and
measured at redemption value as of the end of the periods presented. At December
31, 1999 and 1998 there were 2,990,762 and 2,938,933 redeemable units
outstanding. The value of the redeemable units are based on the closing market
price of FelCor's common stock at the balance sheet date, which at December 31,
1999 and 1998 was $17.50 and $23.00, respectively.
Preferred Units
FelCor's Board of Directors is authorized to provide for the issuance of up
to 20,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series, to fix the designation, powers preferences and
rights of each such series, and the qualifications, limitations or restrictions
thereof.
In 1996 FelCor issued 6.1 million shares of its $1.95 Series A Preferred
Stock at $25 per share. The Series A Preferred Stock bears an annual dividend
equal to the greater of $1.95 per share or the cash distributions declared or
paid for the corresponding period on the number of
F-35
<PAGE> 170
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of Common Stock into which the Series A Preferred Stock is then
convertible. Each share of the Series A Preferred Stock is convertible at the
shareholder's option to 0.7752 shares of Common Stock, subject to certain
adjustments, and may not be redeemed by the Company before April 30, 2001. The
proceeds from the Series A Preferred Stock were contributed to the Company in
exchange for Series A Preferred Units. The preference on these units are the
same as FelCor's Series A Preferred Stock.
On May 1, 1998, FelCor issued 5.75 million depositary shares, representing
57,500 shares of 9% Series B Preferred Stock, at $25 per depositary share. The
Series B Preferred Stock and the corresponding depositary shares may be called
by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund
or mandatory redemption, and are not convertible into any other securities of
FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per
share (equivalent to $25 per depositary share) and is entitled to annual
dividends at the rate of 9% of the liquidation preference (equivalent to $2.25
annually per depositary share). The proceeds from the Series B Preferred Stock
were contributed to the Company in exchange for Series B Preferred Units. The
preference on these units are the same as FelCor's Series B Preferred Stock.
At December 31, 1999, all distributions then payable on the Series A and
Series B Preferred Units had been paid.
Treasury Stock Repurchase Program
On September 3, 1999, FelCor announced that its Board of Directors had
authorized it to repurchase up to $100 million of its outstanding common shares.
At December 31, 1999, FelCor had completed the repurchase of approximately 5.8
million common shares at a cost of approximately $98.4 million which has been
recorded as a reduction to Partner's Capital as a result of the redemption of
units held by FelCor to fund the repurchase.
9. TAXES, INSURANCE AND OTHER
Taxes, insurance and other is comprised of the following for the years
ended December 31, 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Real estate and personal property taxes............ $52,118 $32,892 $18,976
Property insurance................................. 3,481 2,341 1,627
State franchise taxes and Canadian income tax...... 3,973 1,609 718
Other.............................................. 316 162
------- ------- -------
Total taxes, insurance, and other........ $59,572 $37,158 $21,483
======= ======= =======
</TABLE>
10. LAND LEASES
The Company leases land occupied by certain hotels from third parties under
various operating leases. Certain leases contain contingent rent features based
on gross revenue at the
F-36
<PAGE> 171
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respective hotels. Future minimum lease payments under the Company's land lease
obligations at December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
2000................................................... $ 18,358
2001................................................... 18,346
2002................................................... 17,951
2003................................................... 17,767
2004................................................... 17,703
2005 and thereafter.................................... 265,115
--------
$355,240
========
</TABLE>
11. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Commitments
The Company is to receive rental income from the Lessees under the
Percentage Leases, which expire in 2002 (five hotels), 2003 (three hotels), 2004
(12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54
hotels), and thereafter (15 hotels). The rental income under the Percentage
Leases between 14 of the unconsolidated entities, of which the Company owns 50%,
is payable by the Lessee to the respective entities and is not included in the
following schedule of future lease commitments to the Company. Minimum future
rental income (i.e., base rents) payable to the Company under these
noncancelable operating leases at December 31, 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
LESSEES
-----------------------
YEAR DJONT BRISTOL TOTAL
---- ---------- ---------- ----------
<S> <C> <C> <C>
2000..................................... $ 140,235 $ 180,055 $ 320,290
2001..................................... 143,609 180,076 323,685
2002..................................... 143,966 180,049 324,015
2003..................................... 130,445 177,302 307,747
2004..................................... 126,885 169,930 296,815
2005 and thereafter...................... 392,499 650,239 1,042,738
---------- ---------- ----------
$1,077,639 $1,537,651 $2,615,290
========== ========== ==========
</TABLE>
The Percentage Lease revenue is based on a percentage of room and suite
revenues, and a varying combination of food and beverage revenues, food and
beverage rents, and other revenues of the Hotels. Both the base rent and the
threshold suite revenue in each lease computation are subject to adjustments for
changes in the Consumer Price Index ("CPI"). The adjustment is calculated at the
beginning of each calendar year for the hotels acquired prior to July of the
previous year. The adjustment in any lease year may not exceed 7%. The CPI
adjustments made in January 2000 ranged from 1.05% to 2.20%, dependent upon the
Lessee. The CPI adjustments for 1999 ranged from 0.55% to 1.5%, dependent upon
the Lessee, and in 1998 was 0.50%.
Under the Percentage Leases, the Company is obligated to pay the costs of
real estate and personal property taxes, property insurance, maintenance of
underground utilities and structural elements of the Hotels, and to set aside a
portion of the hotels' revenues (varying from 4% of room and suite revenue to 3%
of total hotel revenue) per month, on a cumulative basis, to fund capital
expenditures for the periodic replacement or refurbishment of furniture,
fixtures and
F-37
<PAGE> 172
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment required for the retention of the franchise licenses with respect to
the Hotels. Included in cash and cash equivalents at December 31, 1999 and 1998,
were cash balances held by the Hotel managers for these capital expenditures of
$19.9 million and $14.8 million, respectively.
Related Party Transactions
The Company's general partner, FelCor, shares its executive offices and
certain employees with FelCor, Inc., and DJONT, and each company bears its share
of the costs thereof, including an allocated portion of the rent, compensation
of certain personnel (other than Mr. Corcoran, whose compensation is borne
solely by FelCor), office supplies, telephones, and depreciation of office
furniture, fixtures, and equipment. The Company reimburses FelCor for its share
of such allocated costs. Any such allocation of shared expenses to FelCor is
required to be approved by a majority of FelCor's Independent Directors. During
1999, 1998, and 1997, the Company and FelCor paid approximately $5.7 million
(approximately 89.5%), $2.8 million (approximately 63%), and $1.3 million
(approximately 38%), respectively, of the allocable expenses under this
arrangement.
Included in the mortgage debt of the unconsolidated entities is a mortgage
loan payable to the Company in the amount of $7.8 million for 1999 and 1998. The
note bears a fixed interest rate of 8% per annum with a 30 year amortization,
matures on December 31, 2004, and is collateralized by a Mortgage and Assignment
of Leases and Rents with respect to the annex of the hotel owned by an entity in
which the Company has a 97% nonvoting interest.
12. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company purchased certain assets and assumed certain liabilities in
connection with the acquisition of hotels in 1998 and 1997. During 1999 the
Company purchased the land related to three hotels, which was previously leased.
These purchases were recorded under the purchase method of accounting. The fair
values of the acquired assets and liabilities recorded at the date of
acquisition are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ---------- --------
<S> <C> <C> <C>
Assets acquired............................... $19,776 $2,427,027 $588,053
Liabilities assumed........................... (7,800) (940,906) (5,932)
Common Stock and Units issued................. (1,174) (1,152,856)
Minority interest contribution................ (6,989) (8,021)
------- ---------- --------
Net cash paid....................... $10,802 $ 326,276 $574,100
======= ========== ========
</TABLE>
Under the Merger Agreement with Bristol Hotel Company, FelCor provided
Bristol a $120 million interim credit facility (the "Interim Credit Facility").
At July 28, 1998, the Interim Credit facility was assumed and canceled by FelCor
upon completion of the Merger.
Approximately $39.7 million, $67.3 million, and $24.7 million of aggregate
preferred unit distributions and unit distributions had been declared as of
December 31, 1999, 1998, and 1997, respectively. These amounts were paid in the
following January of each year.
In 1998 the Company entered into a joint venture, in which the Company
contributed a hotel with a net book value of $53.9 million for a 60% equity
interest in the venture. The Company has consolidated this venture in the
financial statements and recorded increases of $34.4 million in investment in
hotels and minority interest in other partnerships.
F-38
<PAGE> 173
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK BASED COMPENSATION PLANS
FelCor sponsors three restricted stock and stock option plans (the "FelCor
Plans"). In addition, upon completion of the Merger, FelCor assumed two stock
option plans previously sponsored by Bristol Hotel Company (the "Bristol
Plans"). FelCor was initially obligated to issue up to 1,271,103 shares of its
Common Stock pursuant to the Bristol Plans. No additional options may be awarded
under the Bristol Plans. The FelCor Plans and the Bristol Plans are referred to
collectively as the "Plans." Upon issuance of any stock, FelCor is obligated to
contribute the proceeds to the Company in exchange for a like number of units.
Stock Options
FelCor is authorized to issue 2,950,000 shares of Common Stock under the
FelCor Plans pursuant to awards granted in the form of incentive stock options,
non-qualified stock options, and restricted stock. All options have 10-year
contractual terms and vest over five equal annual installments (20% per year),
beginning in the year following the date of grant.
The options outstanding under the Bristol Plans generally vest either in
four equal annual installments (25% per year) beginning in the second year
following the original date of award, in five equal annual installments (20% per
year) beginning in the year following the original date of award, or on a single
date that is three to five years following the original date of the date of
award.
A summary of the status of FelCor's non-qualified stock options under the
Plans as of December 31, 1999, 1998, and 1997, and the changes during the years
are presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
the year............. 2,540,466 $22.53 1,670,500 $29.96 1,047,500 $25.67
Granted(A)(B).......... 9,750 $22.13 2,445,813 $20.54 752,000 $35.70
Exercised.............. (760) $10.33 (332,915) $11.67 (31,000) $19.11
Forfeited(B)........... (52,683) $32.41 (1,242,932) $31.51 (98,000) $31.56
--------- ---------- ---------
Outstanding at end
of year.............. 2,496,773 $22.32 2,540,466 $22.53 1,670,500 $29.96
========= ========== =========
Exercisable at end
of year.............. 906,675 $24.58 796,499 $24.64 411,500 $24.42
</TABLE>
------------
(A) 1998 grants include options covering 1,271,103 shares of Common Stock
issuable as a result of the assumption of the Bristol Plans.
(B) To enable FelCor to preserve its stock options as a meaningful element of
compensation in 1998, existing option holders under the FelCor Plans
employed by FelCor on a full-time basis were offered the opportunity to
exchange their existing options (having exercise prices ranging from $26.44
to $38.56 per share) for a lesser number of new options having an equal
value under the Black-Scholes option pricing model. Twenty-two employees
accepted this offer in 1998, surrendering for cancellation existing options
covering an aggregate of 1,151,500 shares of Common Stock at a weighted
average exercise price of $32.807 per share for new options covering an
aggregate of 840,393 shares of Common Stock at an exercise price of $22.125
per share. The new options have the same
F-39
<PAGE> 174
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expiration dates and vesting schedules as the options surrendered for
cancellation; however, none of the new options were exercisable prior to
January 1, 2000.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------
NUMBER WGTD. WGTD NUMBER WGTD.
OUTSTANDING AVG. AVG. EXERCISABLE AVG.
RANGE OF AT REMAINING EXERCISE AT EXERCISE
EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
--------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$10.33 to $29.50........... 2,206,819 7.21 $20.80 734,890 $22.21
$30.28 to $36.63........... 289,954 7.63 $33.92 171,785 $34.72
--------------------------- --------- ---- ------ ------- ------
$10.33 to $36.63........... 2,496,773 7.26 $22.32 906,675 $24.58
</TABLE>
Restricted Stock
A summary of the status of FelCor's restricted stock grants as of December
31, 1999, 1998, and 1997 and the changes during the years are presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FAIR MARKET FAIR MARKET FAIR MARKET
VALUE AT VALUE AT VALUE AT
# SHARES GRANT # SHARES GRANT # SHARES GRANT
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of the year............ 125,375 $28.97 115,500 $29.03 84,500 $26.04
------- ------- -------
Granted:
With 5-year pro rata
vesting.............. 5,000 $21.25 35,000 $35.00
Vest 100% at grant
date................. 4,875 $35.63 6,000 $35.00
Vest 100% within 12
months
of grant............. 2,500 $36.94
------- ------ -------
Total granted............ 9,875 $28.35 43,500 $35.11
Forfeited................ (12,500) $30.00
------- ------- -------
Outstanding at end of
year................... 125,375 $28.97 125,375 $28.97 115,500 $29.03
======= ======= =======
Vested at end
of year................ 83,575 $28.35 65,175 $28.26 40,400 $26.60
</TABLE>
14. LESSEES
All of the Company's percentage lease revenue is derived from the
Percentage Leases with the Lessees. Certain information, related to DJONT's
financial statements, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Balance Sheet Information:
Cash and cash equivalents................................. $ 20,127 $28,538
Accounts receivable, net.................................. $ 28,601 $27,561
Total assets.............................................. $ 71,659 $63,972
Due to FelCor Lodging Limited Partnership................. $ 22,064 $16,875
Accounts payable.......................................... $ 12,742 $13,508
Shareholders' deficit..................................... $(13,142) $(8,231)
</TABLE>
F-40
<PAGE> 175
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statement of Operations Information:
Room and suite revenue....................... $649,323 $618,122 $456,614
Percentage lease expenses.................... $307,532 $289,891 $216,990
Net income (loss)............................ $ (4,911) $ 844 $ (2,672)
</TABLE>
Certain entities owning interests in DJONT and managers for certain hotels
have agreed to make loans to DJONT of up to an aggregate of approximately $17.3
million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 38
of the Hotels. No such loans were outstanding at December 31, 1999.
DJONT engages third-party managers to operate the Hotels leased by it and
generally pays such managers a base management fee based on a percentage of room
and suite revenue and an incentive management fee based on DJONT's income before
overhead expenses for each hotel. In certain instances, the hotel managers have
subordinated fees and are committed to make subordinated loans to DJONT, if
needed, to meet its rental and other obligations under the Percentage Leases.
Bristol is a publicly traded company whose stock is listed on the New York
Stock Exchange under the symbol BH and that files financial statements in
accordance with the Securities Exchange Act of 1934, as amended.
Bristol serves as both the lessee and manager of the 100 Hotels leased to
it by the Company at December 31, 1999, and, as such, is compensated for both
roles through the profitability of the Hotels, after meeting their operating
expenses and rental obligations under the Percentage Leases.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases, and is required
to maintain a minimum liquid net worth. A portion of this liquid net worth is
being satisfied through a letter of credit for the benefit of the Company. This
Letter of Credit is subject to periodic reductions upon satisfaction of certain
conditions and, at December 31, 1999, totaled $9.1 million. According to
Bristol's press release dated February 1, 2000, for the year ended December 31,
1999, and the period from July 28, 1998, through December 31, 1998, Bristol had
net income of $8.2 million and $2.6 million, respectively, and at December 31,
1999 and 1998, had stockholders' equity of $43.1 million and $35.4 million,
respectively.
At December 31, 1999, the Company owned interests in 188 Hotels operating
under various brand names. The Hotels generally operate pursuant to franchise
license agreements which require the payment of fees based on a percentage of
room and suite revenue. These fees are paid by the Lessees.
15. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are
consistent with the Company's method of internal reporting, which segments its
business by Lessee. The Company's Lessees at December 31, 1999, were DJONT and
Bristol. Prior to July 28, 1998 (the date of the Bristol Merger), the Company
had only one lessee, DJONT.
F-41
<PAGE> 176
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present information about the reportable segments for
the year ended December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Statement of Operations Information:
Revenues:
Percentage lease revenue............ $ 256,128 $ 234,765 $ 490,893 $ 490,893
Equity in income from unconsolidated
entities.......................... $ 7,725 $ 759 $ 8,484 $ 8,484
Expenses:
Depreciation........................ $ 80,969 $ 71,748 $ 152,717 $ 231 $ 152,948
Interest expense.................... $ 125,435 $ 125,435
Income (loss) before nonrecurring
items............................... $ 147,868 $ 118,949 $ 266,817 $(130,164) $ 136,653
Gain on sale of hotels................ $ 236 $ 236
Income (loss) before extraordinary
change.............................. $ 147,868 $ 118,949 $ 266,817 $(129,928) $ 136,889
Funds from operations:
Income (loss) before extraordinary
charge............................ $ 147,868 $ 118,949 $ 266,817 $(129,928) $ 136,889
Series B preferred distributions.... (12,937) (12,937)
Depreciation........................ 80,969 71,748 152,717 231 152,948
Depreciation for unconsolidated
entities.......................... 9,248 747 9,995 9,995
---------- ---------- ---------- --------- ----------
Funds from operations................. $ 238,085 $ 191,444 $ 429,529 $(142,634) $ 286,895
========== ========== ========== ========= ==========
Weighted average units
outstanding(1).................... 75,251
Other Information:
Total assets.................. $1,940,247 $2,243,916 $4,184,163 $ 68,555 $4,252,718
Capital expenditures.......... $ 51,587 $ 170,733 $ 222,320 $ 222,320
YEAR ENDED DECEMBER 31, 1998
Statement of Operations Information:
Percentage lease revenue.............. $ 237,555 $ 90,480 $ 328,035 $ 328,035
Equity in income from unconsolidated
entities............................ $ 6,744 $ 273 $ 7,017 $ 7,017
Expenses:
Depreciation........................ $ 71,055 $ 19,619 $ 90,674 $ 161 $ 90,835
Interest expense.................... $ 73,182 $ 73,182
Income before nonrecurring item....... $ 143,736 $ 54,233 $ 197,969 $ (74,032) $ 123,937
Gain on sale of hotels................ $ 477 $ 477
Income (loss) before extraordinary
charge.............................. $ 143,736 $ 54,233 $ 197,969 $ (73,555) $ 124,414
Funds from operations:
Income (loss) before extraordinary
charge............................ $ 143,736 $ 54,233 $ 197,969 $ (73,555) $ 124,414
Series B preferred distributions.... (8,373) (8,373)
Depreciation........................ 71,055 19,619 90,674 161 90,835
Depreciation for unconsolidated
entities.......................... 10,254 233 10,487 10,487
---------- ---------- ---------- --------- ----------
Funds from operations................. $ 225,045 $ 74,085 $ 299,130 $ (81,767) $ 217,363
========== ========== ========== ========= ==========
Weighted average units
outstanding(1).................... 58,013
Other Information:
Total assets.................. $2,022,975 $2,093,328 $4,116,303 $ 59,080 $4,175,383
Capital expenditures.......... $ 65,264 $ 65,839 $ 131,103 $ 131,103
</TABLE>
------------
(1) Weighted average units outstanding are computed including dilutive FelCor
options and unvested stock grants, and assuming conversion of Series A
Preferred Units to Units.
F-42
<PAGE> 177
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth Percentage Lease revenue and investment in
hotel assets represented by the following geographical areas as of and for the
years ended December 31, (in thousands):
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
California.................... $ 97,283 $ 63,733 $ 698,942 $ 642,965
Texas......................... 94,782 52,220 891,626 854,558
Florida....................... 61,516 45,719 542,298 519,280
Georgia....................... 39,247 23,691 355,519 349,429
Other States.................. 186,248 138,437 1,802,220 1,705,220
Canada........................ 11,817 5,123 75,294 62,202
-------- -------- ---------- ----------
Total............... $490,893 $328,923 $4,365,899 $4,133,654
======== ======== ========== ==========
</TABLE>
16. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB 133" which deferred the
effective date of FAS 133 for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company believes that, upon implementation, FAS 133
will not have a material impact on the financial statements of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidance on revenue
recognition. SAB 101 is effective for fiscal years beginning after December 15,
1999. SAB 101 requires that a lessor not recognize contingent rental income
until annual specified thresholds have been achieved by the lessee. During 1999,
the Company's leases had quarterly, rather than annual, specified rental
thresholds and the Company recognized contingent rentals earned in each quarter
pursuant to the Percentage Lease terms. The Company has reviewed the terms of
its Percentage Leases and has determined that the provisions of SAB 101 will not
materially impact the Company's revenue recognition on an interim basis in 2000,
since a significant majority of the Percentage Leases contain quarterly
specified thresholds. SAB 101 will not impact the Company's revenue recognition
on an annual basis given the Company maintains only calendar year leases. SAB
101 will have no impact on the Company's interim or annual cash flow from the
Lessees, and therefore on its ability to pay distributions.
17. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the years
ended December 31, 1999 and 1998 follows (in thousands, except per unit data).
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of quarterly results have been
reflected in the data. It is also management's opinion, however, that quarterly
operating data for hotel enterprises are not indicative of results to be
achieved in succeeding quarters or years. In order to obtain a more accurate
indication of
F-43
<PAGE> 178
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance, there should be a review of operating results, changes in partner's
equity and cash flows for a period of several years.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues............................ $126,917 $135,187 $124,082 $117,815
Income before nonrecurring items.......... $ 38,067 $ 43,454 $ 31,115 $ 24,017
Net income applicable to unitholders...... $ 31,883 $ 36,157 $ 24,931 $ 18,070
Per diluted unit data:
Net income applicable to unitholders.... $ 0.45 $ 0.51 $ 0.35 $ 0.26
Weighted average units outstanding...... 70,964 71,338 71,001 68,533
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- -------- --------
<S> <C> <C> <C> <C>
Total revenues............................... $57,528 $67,402 $108,599 $106,088
Income before nonrecurring items............. $23,251 $26,944 $ 41,493 $ 32,249
Net income applicable to unitholders......... $19,746 $22,090 $ 32,790 $ 25,290
Per diluted unit data:
Net income applicable to unitholders....... $ 0.50 $ 0.55 $ 0.53 $ 0.36
Weighted average units outstanding......... 39,885 39,882 61,913 71,126
</TABLE>
18. CONSOLIDATING FINANCIAL INFORMATION
Certain of the Company's wholly-owned subsidiaries (FelCor/CSS Holdings,
L.P.; FelCor/ CSS Hotels, L.L.C.; FelCor/LAX Hotels L.L.C.; FelCor Eight Hotels,
L.L.C.; FelCor/St. Paul Holdings, L.P.; FelCor/LAX Holdings, L.P.; FHAC Nevada
Holdings, L.L.C.; FHAC Texas Holdings, L.P., FelCor Omaha Hotel Company, L.L.C.,
FelCor Country Villa Hotel, L.L.C., FelCor Moline Hotel, L.L.C., FelCor Canada
Co. and FelCor Hotel Asset Company, L.L.C., collectively "Subsidiary
Guarantors"), together with FelCor and one of its wholly-owned subsidiaries
(FelCor Nevada Holdings, L.L.C.), are guarantors of senior debt. The following
tables present consolidating information for the Subsidiary Guarantors.
F-44
<PAGE> 179
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
properties................... $ 974,642 $1,884,901 $1,175,801 $4,035,344
Equity investment in
consolidated entities........ 2,799,824 $(2,799,824)
Investment in unconsolidated
entities..................... 120,556 16,162 136,718
Cash and cash equivalents...... 3,093 12,418 20,612 36,123
Due from Lessee................ 12,615 5,035 744 18,394
Due (to)/from subsidiary....... (191,148) 219,280 (28,132)
Note receivable from
unconsolidated entity........ 7,760 7,760
Deferred assets................ 9,842 1,336 4,295 15,473
Other assets................... 3,796 1,834 309 5,939
---------- ---------- ---------- ----------- ----------
Total assets.......... $3,740,980 $2,140,966 $1,173,629 $(2,799,824) $4,255,751
========== ========== ========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt........................... $1,371,220 $ 142,530 $ 320,204 $1,833,954
Distributions payable.......... 39,657 39,657
Accrued expenses and other
liabilities.................. 65,480 65,480
Minority interest -- other
partnerships................. (366) 52,037 51,671
---------- ---------- ---------- ----------- ----------
Total liabilities..... 1,475,991 142,530 372,241 1,990,762
---------- ---------- ---------- ----------- ----------
Redeemable units, at redemption
value........................ 52,338 52,338
Preferred units................ 295,000 295,000
Partners' capital.............. 1,917,651 1,998,436 801,388 $(2,799,824) 1,917,651
---------- ---------- ---------- ----------- ----------
Total liabilities and
partners' capital... $3,740,980 $2,140,966 $1,173,629 $(2,799,824) $4,255,751
========== ========== ========== =========== ==========
</TABLE>
F-45
<PAGE> 180
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
properties................... $1,073,266 $ 1,909,299 $ 973,017 $3,955,582
Equity investment in
consolidated entities........ 2,647,693 $(2,647,693)
Investment in unconsolidated
entities..................... 123,345 16,912 42 140,299
Cash and cash equivalents...... 20,000 4,672 10,020 34,692
Due from Lessee................ 8,248 13,905 (3,185) 18,968
Due (to)/from subsidiary....... (51,291) 47,111 4,180
Note receivable from
unconsolidated entity........ 7,766 7,766
Deferred assets................ 9,996 45 10,041
Other assets................... 6,201 1,834 8,035
---------- ----------- ---------- ----------- ----------
Total assets.......... $3,845,224 $ 1,993,778 $ 984,074 $(2,647,693) $4,175,383
========== =========== ========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt........................... $1,316,696 $ 48,942 $ 229,096 $1,594,734
Distributions payable.......... 67,262 67,262
Accrued expenses and other
liabilities.................. 56,296 192 824 57,312
Minority interest -- other
partnerships................. 51,105 51,105
---------- ----------- ---------- ----------- ----------
Total liabilities..... 1,440,254 49,134 281,025 1,770,413
---------- ----------- ---------- ----------- ----------
Redeemable units, at redemption
value........................ 67,595 67,595
Preferred units................ 295,000 295,000
Partners' capital.............. 2,042,375 1,944,644 703,049 $(2,647,693) 2,042,375
---------- ----------- ---------- ----------- ----------
Total liabilities
and partners'
capital............. $3,845,224 $ 1,993,778 $ 984,074 $(2,647,693) $4,175,383
========== =========== ========== =========== ==========
</TABLE>
F-46
<PAGE> 181
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent..................... $131,706 $228,154 $131,033 $490,893
Equity in income from
unconsolidated entities........ 7,725 759 8,484
Other revenue.................... 4,624 4,624
-------- -------- -------- --------
Total revenue........... 144,055 228,913 131,033 504,001
-------- -------- -------- --------
Expenses:
General and administrative....... 2,447 4,240 2,435 9,122
Depreciation..................... 43,090 69,665 40,193 152,948
Taxes, insurance and other....... 17,643 39,460 20,027 77,130
Interest expense................. 95,254 9,327 20,854 125,435
Minority interest other
partnerships................... 1,099 1,614 2,713
-------- -------- -------- --------
Total expenses.......... 159,533 122,692 85,123 367,348
Net income (loss) before
nonrecurring items............. (15,478) 106,221 45,910 136,653
Gain on sale of hotels, net...... 236 236
Extraordinary charge for write
off of deferred financing
fees........................... 1,113 1,113
-------- -------- -------- --------
Net income (loss)................ (16,355) 106,221 45,910 135,776
Preferred distributions.......... 24,735 24,735
-------- -------- -------- --------
Net income (loss) applicable to
unitholders.................... $(41,090) $106,221 $ 45,910 $111,041
======== ======== ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities..................... $ 17,555 $183,998 $ 80,812 $ 282,365
Cash flows from (used
in)investing activities........ 55,786 (99,074) (162,229) (205,517)
Cash flows from (used in)
financing activities........... (90,248) (77,178) 92,009 (75,417)
-------- -------- --------- ---------
Change in cash and cash
equivalents.................... (16,907) 7,746 10,592 1,431
Cash and cash equivalents at
beginning of period............ 20,000 4,672 10,020 34,692
-------- -------- --------- ---------
Cash and equivalents at end of
year........................... $ 3,093 $ 12,418 $ 20,612 $ 36,123
======== ======== ========= =========
</TABLE>
F-47
<PAGE> 182
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent........................... $125,103 $143,977 $58,955 $328,035
Equity in income from unconsolidated
entities............................. 6,960 57 7,017
Other revenue.......................... 4,504 61 4,565
-------- -------- ------- --------
Total revenue................ 136,567 144,038 59,012 339,617
-------- -------- ------- --------
Expenses:
General and administrative............. 2,117 2,226 911 5,254
Depreciation........................... 36,490 41,021 13,324 90,835
Taxes, insurance and other............. 14,388 23,548 7,352 45,288
Interest expense....................... 62,785 3,076 7,321 73,182
Minority interest other partnerships... 1,121 1,121
-------- -------- ------- --------
Total expenses............... 115,780 69,871 30,029 215,680
Net income before nonrecurring
items............................. 20,787 74,167 28,983 123,937
Gain on sale of hotels, net.......... 477 477
Extraordinary charge for write off of
deferred financing fees........... 3,075 3,075
-------- -------- ------- --------
Net income........................... 18,189 74,167 28,983 121,339
Preferred distributions................ 21,423 21,423
-------- -------- ------- --------
Net income (loss) applicable to
unitholders.......................... $ (3,234) $ 74,167 $28,983 $ 99,916
======== ======== ======= ========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities......................... $ 34,025 $115,187 $ 43,371 $ 192,583
Cash flows used in investing
activities......................... (444,363) (25,753) (80,382) (550,498)
Cash flows from (used in) financing
activities......................... 412,795 (84,762) 47,031 375,064
--------- -------- -------- ---------
Change in cash and cash
equivalents........................ 2,457 4,672 10,020 17,149
Cash and cash equivalents at
beginning of period................ 17,543 17,543
--------- -------- -------- ---------
Cash and equivalents at end of
year............................... $ 20,000 $ 4,672 $ 10,020 $ 34,692
========= ======== ======== =========
</TABLE>
F-48
<PAGE> 183
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Percent rent............................ $ 83,528 $ 77,335 $ 8,251 $ 169,114
Equity in income from unconsolidated
entities.............................. 6,963 6,963
Other revenue........................... 367 207 574
--------- -------- -------- ---------
Total revenue................. 90,858 77,542 8,251 176,651
--------- -------- -------- ---------
Expenses:
General and administrative.............. 1,848 1,712 183 3,743
Depreciation............................ 22,798 26,094 1,906 50,798
Taxes, insurance and other.............. 11,781 10,661 651 23,093
Interest expense........................ 26,673 2,119 28,792
Minority interest other partnerships.... 573 573
--------- -------- -------- ---------
Total expenses................ 63,100 40,586 3,313 106,999
--------- -------- -------- ---------
Net income before extraordinary
charge................................ 27,758 36,956 4,938 69,652
Extraordinary charge for write off of
deferred financing fees............... 185 185
--------- -------- -------- ---------
Net income.............................. 27,573 36,956 4,938 69,467
Preferred distributions................. 11,797 11,797
--------- -------- -------- ---------
Net income applicable to unitholders.... $ 15,776 $ 36,956 $ 4,938 $ 57,670
========= ======== ======== =========
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR TOTAL
FELCOR L.P. GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities... $ 57,817 $ 36,598 $ 3,063 $ 97,478
Cash flows used in investing
activities........................... (598,467) (16,242) (73,151) (687,860)
Cash flows from (used in) financing
activities........................... 550,400 (20,356) 70,088 600,132
--------- -------- -------- ---------
Change in cash and cash equivalents.... 9,750 9,750
Cash and cash equivalents at beginning
of period............................ 7,793 7,793
--------- -------- -------- ---------
Cash and equivalents at end of year.... $ 17,543 $ $ $ 17,543
========= ======== ======== =========
</TABLE>
F-49
<PAGE> 184
FELCOR LODGING LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SUBSEQUENT EVENTS
In connection with the efforts of Bass plc to acquire Bristol, as announced
on February 28, 2000, a Bass subsidiary (Bass America, Inc.) contributed
4,713,185 outstanding FelCor common shares held by it to the Company in exchange
for a like number of units. This exchange will not affect FFO or earnings per
unit, although it results in reducing FelCor's percentage ownership in the
Company from approximately 95% to approximately 88%.
On January 4, 2000, FelCor announced that its Board of Directors had
approved a $200 million increase to the existing $100 million stock repurchase
program, authorizing FelCor to purchase up to an aggregate of $300 million of
its outstanding common shares. Through September 15, 2000, FelCor had
repurchased approximately 9.5 million shares of FelCor common stock at an
aggregate cost of approximately $167.8 million.
On April 26, 2000, the Company closed a 10-year, $145 million First
Mortgage Term Loan, which is collateralized by seven Sheraton hotels and carries
an 8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of
10-year, First Mortgage Term Loans which are collateralized by eight Embassy
Suites hotels and carry an 8.69% fixed interest rate. The loans are
non-recourse, mature in May 2010, and amortize over 25 years. The proceeds of
these loans were used to reduce borrowings under its $850 million Line of
Credit.
The Company has identified 25 hotels that it considers non-strategic and
has announced its intention to sell such hotels within the next year. Three of
the hotels are leased by DJONT and the other 22 are leased and managed by
Bristol. The Company expects gross sales proceeds from these hotels to be
approximately $150 million and net proceeds to be approximately $136 million. In
connection with the decision to sell these hotels, the Company has recorded, at
June 30, 2000, a one-time reserve of $63 million representing the difference
between the net book value of these hotels and the estimated net proceeds. The
results of operations associated with the assets held for sale, included in the
Company's results of operations, for the six months ended June 30, 2000, is $6.1
million. The hotels were depreciated through June 30, 2000.
On July 14, the Company entered into a binding sale contract to sell its
Embassy Suites hotel, Los Angeles International Airport-North, California (215
suites) for a gross price of approximately $24 million. The Company expects the
sale will close in the third quarter of 2000, and result in a gain on sale of
approximately $2.5 million. This hotel is not included in the 25 hotels held for
sale.
On July 21, 2000, FelCor's Independent Directors approved the acquisition
of 100% of DJONT effective January 1, 2001. The purchase price is approximately
417,000 units of the Company; no binding agreements have been entered into for
this acquisition, and the Company cannot assure that they will successfully
complete this transaction.
On August 1, 2000, the Company renewed it Line of Credit. The Line of
Credit was reduced from $850 million to $600 million and the maturity was
extended from July 2001 to August 2003. The effective interest rate ranges from
87.5 basis points to 250 basis points above LIBOR depending on the Company's
leverage and corporate rating.
On September 15, 2000, the Company completed the private placement of $400
million in aggregate principal amount of its long term senior unsecured notes.
The notes bear interest at 9 1/2%, mature in 2008 and are priced at 98.633% to
yield 9.75%. The discount on the $400 million senior notes accrete using the
straight line method over the maturity of the notes.
F-50
<PAGE> 185
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotels, net of accumulated depreciation of
$397,735 at June 30, 2000 and $330,555 at December 31,
1999...................................................... $3,796,755 $4,035,344
Investment in unconsolidated entities....................... 133,038 136,718
Assets held for sale........................................ 135,647
Cash and cash equivalents................................... 50,852 36,123
Due from Lessees............................................ 28,598 18,394
Note receivable from unconsolidated entity.................. 7,728 7,760
Deferred expenses, net of accumulated amortization of $6,874
at June 30, 2000 and $4,491 at December 31, 1999.......... 17,093 15,473
Other assets................................................ 7,054 5,939
---------- ----------
Total assets...................................... $4,176,765 $4,255,751
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt, net of discount of $1,288 at June 30, 2000 and $1,401
at December 31, 1999...................................... $1,882,743 $1,833,954
Distributions payable....................................... 35,237 39,657
Accrued expenses and other liabilities...................... 73,335 65,480
Deferred rent............................................... 18,604
Minority interest in Operating Partnership, 7,597 and 2,991
units issued and outstanding at June 30, 2000 and December
31, 1999, respectively.................................... 221,878 90,078
Minority interest in other partnerships..................... 50,710 51,671
---------- ----------
Total liabilities................................. 2,282,507 2,080,840
---------- ----------
Commitments and contingencies (Notes 5 and 6)
Shareholders' equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
Series A Cumulative Preferred Stock, 6,031 and 6,050
shares issued and outstanding at June 30, 2000 and
December 31, 1999, respectively........................ 150,765 151,250
Series B Redeemable Preferred Stock, 58 shares issued and
outstanding............................................ 143,750 143,750
Common stock, $.01 par value, 200,000 shares authorized,
69,412 and 69,291 shares issued, including shares in
treasury, at June 30, 2000 and December 31, 1999,
respectively.............................................. 694 693
Additional paid-in capital.................................. 2,078,023 2,138,477
Distributions in excess of earnings......................... (206,783) (119,385)
---------- ----------
2,166,449 2,314,785
Common stock in treasury, at cost, 14,600 shares and 6,976
shares at June 30, 2000 and December 31, 1999,
respectively.............................................. (272,191) (139,874)
---------- ----------
Total shareholders' equity........................ 1,894,258 2,174,911
---------- ----------
Total liabilities and shareholders' equity........ $4,176,765 $4,255,751
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
<PAGE> 186
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue............. $133,286 $131,891 $256,335 $256,882
Equity in income from unconsolidated
entities.......................... 3,769 2,591 5,648 3,837
Other revenue........................ 810 705 2,687 1,385
-------- -------- -------- --------
Total revenues............... 137,865 135,187 264,670 262,104
-------- -------- -------- --------
Expenses:
Depreciation......................... 41,080 37,737 81,480 74,162
Reserve for assets held for sale..... 63,000 63,000
Interest expense..................... 39,740 30,750 77,644 59,172
Taxes, insurance, and other.......... 17,234 15,425 35,877 32,372
Land leases.......................... 6,151 4,479 11,711 8,485
General and administrative........... 2,713 2,509 6,112 4,753
Minority interest in Operating
Partnership....................... (3,403) 1,519 (2,399) 2,839
Minority interest in other
partnerships...................... 1,125 833 2,093 1,639
-------- -------- -------- --------
Total expenses............... 167,640 93,252 275,518 183,422
-------- -------- -------- --------
Net income (loss) before nonrecurring
items................................ (29,775) 41,935 (10,848) 78,682
Gain on sale of land................... 875 875
Extraordinary charge from write off of
deferred financing fees.............. (1,113) (1,113)
-------- -------- -------- --------
Net income (loss)...................... (28,900) 40,822 (9,973) 77,569
Preferred dividends.................... 6,174 6,184 12,358 12,368
-------- -------- -------- --------
Net income (loss) applicable to common
shareholders......................... $(35,074) $ 34,638 $(22,331) $ 65,201
======== ======== ======== ========
Per common share data:
Basic:
Net income (loss) applicable to
common shareholders............... $ (0.64) $ 0.51 $ (0.39) $ 0.96
======== ======== ======== ========
Weighted average common shares
outstanding....................... 54,714 68,013 56,930 68,011
Diluted:
Net income (loss) applicable to
common shareholders............... $ (0.64) $ 0.51 $ (0.39) $ 0.95
======== ======== ======== ========
Weighted average common shares
outstanding....................... 54,945 68,351 57,161 68,347
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE> 187
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (9,973) $ 77,569
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 81,480 74,162
Gain on sale of land................................... (875)
Reserve for assets held for sale....................... 63,000
Amortization of deferred financing fees................ 2,383 1,303
Accretion of debt...................................... (446) (494)
Amortization of unearned officers' and directors'
compensation.......................................... 472 350
Equity in income from unconsolidated entities.......... (5,648) (3,837)
Extraordinary charge for write off of deferred
financing fees........................................ 1,113
Minority interest in Operating Partnership............. (2,399) 2,839
Minority interest in other partnerships................ 2,093 1,639
Changes in assets and liabilities:
Due from Lessees....................................... (10,204) (13,356)
Deferred expenses...................................... (4,003) (5,538)
Other assets........................................... (1,251) (1,140)
Deferred rent.......................................... 18,604
Accrued expenses and other liabilities................. 5,510 15,343
--------- ---------
Net cash flow provided by operating activities.... 138,743 149,953
--------- ---------
Cash flows used in investing activities:
Improvements and additions to hotels...................... (41,408) (148,519)
Acquisition of hotel assets............................... (10,802)
Proceeds from sale of assets.............................. 1,071 15,091
Cash distributions from unconsolidated entities........... 11,708 13,297
--------- ---------
Net cash flow used in investing activities........ (28,629) (130,933)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. 500,892 744,000
Repayment of borrowings................................... (451,847) (630,899)
Purchase of treasury stock................................ (56,733)
Buyback of assumed stock options.......................... (1,860)
Other distributions....................................... (3,054)
Distributions paid to limited partners.................... (5,654) (4,273)
Distributions paid to preferred shareholders.............. (12,368) (13,619)
Distributions paid to common shareholders................. (64,761) (98,352)
--------- ---------
Net cash flow used in financing activities........ (95,385) (3,143)
--------- ---------
Net change in cash and cash equivalents..................... 14,729 15,877
Cash and cash equivalents at beginning of periods........... 36,123 34,692
--------- ---------
Cash and cash equivalents at end of periods................. $ 50,852 $ 50,569
========= =========
Supplemental cash flow information --
Interest paid............................................. $ 73,259 $ 55,549
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE> 188
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's largest
hotel real estate investment trusts ("REIT"). At June 30, 2000, it owned
interests in 188 hotels with nearly 50,000 rooms and suites (collectively the
"Hotels") through its greater than 88% equity interest in FelCor Lodging Limited
Partnership (the "Operating Partnership"). FelCor, the Operating Partnership,
and their subsidiaries are herein referred to, collectively, as the "Company."
The Company owns 100% of the interest in 163 of the Hotels, a 90% or greater
interest in entities owning seven hotels, a 60% interest in an entity owning two
hotels and 50% interests in separate entities that own 16 hotels.
The Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels
in the world.
At June 30, 2000, the Company leased 86 of the Hotels to DJONT Operations,
L.L.C., a Delaware limited liability company, or a consolidated subsidiary
thereof (collectively "DJONT"), and leased 100 of the Hotels to Bristol Hotels &
Resorts, or a consolidated subsidiary thereof ("Bristol" and, together with
DJONT, the "Lessees"). Two Hotels were operated without a lease.
The following table provides a schedule of the Hotels, by brand, operated
by each of the Company's Lessees at June 30, 2000:
<TABLE>
<CAPTION>
NOT OPERATED
BRAND DJONT BRISTOL UNDER A LEASE TOTAL
----- ----- ------- ------------- -----
<S> <C> <C> <C> <C>
Embassy Suites................................ 60 60
Holiday Inn................................... 43 1 44
Crowne Plaza and Crowne Plaza Suites(R)....... 18 18
Doubletree and Doubletree Guest Suites(R)..... 14 14
Holiday Inn Select(R)......................... 10 10
Sheraton(R) and Sheraton Suites(R)............ 10 10
Hampton Inn(R)................................ 9 9
Holiday Inn Express(R)........................ 5 5
Fairfield Inn(R).............................. 5 5
Harvey Hotel(R)............................... 4 4
Independents.................................. 2 1 3
Courtyard by Marriott(R)...................... 2 2
Four Points by Sheraton(R).................... 1 1
Hilton Suites(R).............................. 1 1
Homewood Suites(R)............................ 1 1
Westin(R)..................................... 1 1
-- --- -- ---
Total Hotels........................ 86 100 2 188
== === == ===
</TABLE>
The Hotels are located in the United States (35 states) and Canada, with a
concentration in Texas (41 hotels), California (20 hotels), Florida (18 hotels)
and Georgia (15 hotels).
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. At June 30, 2000, DJONT had entered into management agreements pursuant
to which 72 of the Hotels leased by it were managed by subsidiaries of Hilton
Hotels Corporation
F-54
<PAGE> 189
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("Hilton"), 11 were managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood") and three were managed by two unrelated management
companies.
At June 30, 2000, Bristol, which became a subsidiary of Bass plc ("Bass")
by virtue of the merger between Bristol and a subsidiary of Bass on March 31,
2000, leased and managed 100 Hotels and managed and operated one hotel, in which
the Company owned a 50% interest, without a lease. Bass is one of the largest
hotel operating companies in the world.
Certain reclassifications have been made to prior period financial
information to conform to the current period's presentation with no effect to
previously reported net income or shareholder's equity.
The financial information for the three and six months ended June 30, 2000
and 1999, is unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results for the periods. The financial information should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1999, included in the Company's Annual Report on Form 10-K
("Form 10-K"). Operating results for the three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2000.
2. DEFERRED RENT
Effective January 2000, Percentage Leases with regard to 68 of the
Company's 188 hotels were changed to provide for the computation of rent on an
annual, rather than quarterly basis. This should result in no change in annual
Percentage Rent or cash flows. In accordance with Staff Accounting Bulletin No.
101 (SAB 101), this change requires that the Company defer Percentage Lease
revenue until annual thresholds are exceeded. This deferred rent is expected to
be fully earned and recognized as Percentage Lease Revenue by the end of 2000.
3. ASSETS HELD FOR SALE
The Company has identified 25 hotels that it considers non-strategic and
has announced its intention to sell such hotels within the next year. Three of
the hotels are leased by DJONT and the other 22 are leased and managed by
Bristol. The Company expects gross sales proceeds from these hotels to be
approximately $150 million and net proceeds to be approximately $136 million. In
connection with the decision to sell these hotels, FelCor has recorded, at June
30, 2000, a one-time reserve of $63 million representing the difference between
the net book value of these hotels and the estimated net proceeds. The results
of operations associated with the assets held for sale, included in the
Company's results of operations, for the six months ended June 30, 2000, is $6.1
million. The hotels were depreciated through June 30, 2000.
4. INVESTMENT IN UNCONSOLIDATED ENTITIES
The Company owned 50% interests in separate entities owning 16 hotels at
June 30, 2000, and 15 hotels at June 30, 1999, a parcel of undeveloped land, and
a condominium management company. The Company also owned a 97% nonvoting
interest in an entity that owns an annex to a hotel owned by the Company and
holds a 50% interest in an entity that is developing condominiums for sale. The
Company accounts for its investments in these unconsolidated entities under the
equity method.
F-55
<PAGE> 190
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Balance sheet information:
Investment in hotels..................................... $339,795 $269,123
Non-recourse mortgage debt............................... $265,874 $196,462
Equity................................................... $ 88,096 $ 93,524
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Statements of Operations Information:
Total revenues....................... $21,245 $17,137 $39,173 $31,297
Net income..................................... $ 8,715 $ 6,358 $13,649 $10,078
Net income attributable to the Company......... $ 4,305 $ 3,127 $ 6,719 $ 4,908
Amortization of cost in excess of book value... (536) (536) (1,071) (1,071)
------- ------- ------- -------
Equity in income from unconsolidated
entities..................................... $ 3,769 $ 2,591 $ 5,648 $ 3,837
======= ======= ======= =======
</TABLE>
5. DEBT
Debt at June 30, 2000, and December 31, 1999, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
COLLATERAL INTEREST RATE MATURITY DATE 2000 1999
---------------- -------------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Floating Rate Debt:
Line of credit........... (a) LIBOR + 163bp June 2001 $ 285,000 $ 351,000
Senior term loan......... (a) LIBOR + 275bp March 2004 249,000 250,000
Mortgage debt............ 3 hotels LIBOR + 200bp February 2003 62,239 62,553
Other.................... Uncollateralized Up to LIBOR + 200bp Various 11,032 32,282
---------- ----------
Total floating rate
debt............. 607,271 695,835
---------- ----------
Fixed Rate Debt:
Line of credit --
swapped................ (a) 7.18% June 2001 125,000 313,000
Publicly-traded term
notes.................. (a) 7.38% October 2004 174,441 174,377
Publicly-traded term
notes.................. (a) 7.63% October 2007 124,271 124,221
Mortgage debt............ 15 hotels 7.24% November 2007 141,367 142,542
Senior term loan --
swapped................ (a) 8.56% March 2004 125,000 125,000
Mortgage debt............ 7 hotels 7.54% April 2009 98,354 99,075
Mortgage debt............ 6 hotels 7.55% June 2009 73,946 74,483
Mortgage debt............ 7 hotels 8.73% May 2010 144,865
Mortgage debt............ 8 hotels 8.70% May 2010 185,762
Other.................... 13 hotels 6.96% - 7.23% 2000 - 2005 82,466 85,421
---------- ----------
Total fixed rate
debt............. 1,275,472 1,138,119
---------- ----------
Total debt......... $1,882,743 $1,833,954
========== ==========
</TABLE>
------------
(a) Collateralized by stock and partnership interests in certain subsidiaries
of FelCor.
F-56
<PAGE> 191
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Thirty-day LIBOR at June 30, 2000, was 6.649%.
A portion of the Company's Line of Credit and Senior Term Loan is matched
with interest rate swap agreements which effectively convert the variable rate
on the Line of Credit and Senior Term Loan to a fixed rate.
The Line of Credit and the Senior Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At June 30, 2000, the Company was not in default with respect
to any such covenants.
The Company's other borrowings contain affirmative and negative covenants
that are generally equal to or less restrictive than the Line of Credit and
Senior Term Loan. Most of the mortgage debt is non-recourse to the Company (with
certain exceptions) and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions. Most of the mortgage debt is
prepayable; subject, however, to various prepayment penalties, yield
maintenance, or defeasance obligations.
On April 26, 2000, the Company closed a 10-year, $145 million First
Mortgage Term Loan, which is secured by seven Sheraton hotels and carries an
8.73% fixed interest rate. On May 2, 2000, the Company closed $186 million of
10-year, First Mortgage Term Loans which are secured by eight Embassy Suites
hotels and carry an 8.70% fixed interest rate. The loans are non-recourse,
mature in May 2010, and amortize over 25 years. The proceeds of these loans were
used to reduce borrowings under the Company's $850 million Line of Credit.
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company is to receive rental income from the Lessees under the
Percentage Leases which expire in 2003 (six hotels), 2004 (11 hotels), 2005 (18
hotels), 2006 (22 hotels), 2007 (27 hotels), 2008 (44 hotels), and thereafter
(19 hotels). The rental income under the Percentage Leases between 15 of the
unconsolidated entities, of which the Company owns 50%, is payable by the Lessee
to the respective entities and is not included in the schedule of future lease
commitments to the Company. Minimum future rental income (i.e., base rents)
payable to the Company under these noncancelable operating leases at June 30,
2000, excluding the 25 hotels that have been designated as held for sale, is as
follows (in thousands):
<TABLE>
<CAPTION>
LESSEES
-----------------------
YEAR DJONT BRISTOL TOTAL
---- ---------- ---------- ----------
<S> <C> <C> <C>
Remainder of 2000........................ $ 72,351 $ 84,402 $ 156,753
2001..................................... 148,009 168,805 316,814
2002..................................... 148,240 168,816 317,056
2003..................................... 137,190 166,123 303,313
2004..................................... 132,584 158,827 291,411
2005 and thereafter...................... 447,848 620,570 1,068,418
---------- ---------- ----------
$1,086,222 $1,367,543 $2,453,765
========== ========== ==========
</TABLE>
F-57
<PAGE> 192
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future rental income (i.e., base rents) payable to the Company
under the noncancelable operating leases for the 25 hotels held for sale as of
June 30, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
LESSEES
-----------------
YEAR DJONT BRISTOL TOTAL
---- ------- ------- --------
<S> <C> <C> <C>
Remainder of 2000................................ $ 1,575 $ 6,338 $ 7,913
2001............................................. 3,150 12,676 15,826
2002............................................. 3,150 12,676 15,826
2003............................................. 3,150 12,578 15,728
2004............................................. 3,150 12,382 15,532
2005 and thereafter.............................. 4,696 34,255 38,951
------- ------- --------
$18,871 $90,905 $109,776
======= ======= ========
</TABLE>
Certain entities owning interests in DJONT and managers for certain hotels
have agreed to make loans to DJONT of up to an aggregate of approximately $17.3
million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of 38
of the Hotels. No such loans were outstanding at June 30, 2000.
DJONT engages third-party managers to operate the Hotels leased by it and
generally pays such managers a base management fee based on a percentage of room
and suite revenue and an incentive management fee based on DJONT's income before
overhead expenses for each hotel. In certain instances, the hotel managers have
subordinated fees and are committed to make subordinated loans to DJONT, if
needed, to meet its rental and other obligations under the Percentage Leases.
Bristol serves as both the lessee and manager of 100 Hotels leased to it by
the Company at June 30, 2000, and, as such, is compensated for both roles
through the profitability of the Hotels, after meeting their operating expenses
and rental obligations under the Percentage Leases.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases, and is required
to maintain a minimum liquid net worth. A portion of this liquid net worth is
being satisfied through a letter of credit for the benefit of the Company. This
letter of credit is subject to periodic reductions upon satisfaction of certain
conditions and, at June 30, 2000, totaled $9.1 million.
7. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are
consistent with the Company's method of internal reporting, which segments its
business by Lessee. The Company's Lessees at June 30, 2000, were DJONT and
Bristol.
F-58
<PAGE> 193
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present information for the reportable segments for
the three and six months ended June 30, 2000 and 1999 for both DJONT and Bristol
(in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
-------------------------------- ------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $74,338 $ 62,717 $137,055 $ 810 $137,865
Net income (loss)................. $33,193 $(23,785) $ 9,408 $(38,308) $(28,900)
Funds from operations............. $68,567 $ 57,197 $125,764 $(44,879) $ 80,885
Weighted average common shares and
units outstanding(1)............ 67,232
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
-------------------------------- ------- ------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $72,845 $62,114 $134,959 $ 228 $135,187
Net income (loss)................. $43,252 $33,233 $ 76,485 $(35,663) $ 40,822
Funds from operations............. $65,385 $51,264 $116,649 $(36,266) $ 80,383
Weighted average common shares and
units outstanding(1)............ 76,029
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2000 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
------------------------------ -------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................ $142,746 $119,237 $261,983 $ 2,687 $264,670
Net income (loss)............. $ 69,892 $ (1,059) $ 68,833 $(78,806) $ (9,973)
Funds from operations......... $132,459 $104,459 $236,918 $(87,538) $149,380
Weighted average common shares
and units outstanding(1).... 67,987
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 1999 DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
------------------------------ -------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................ $146,901 $114,752 $261,653 $ 451 $262,104
Net income (loss)............. $ 87,200 $ 57,795 $144,995 $(67,426) $ 77,569
Funds from operations......... $131,827 $ 92,348 $224,175 $(69,943) $154,232
Weighted average common shares
and units outstanding(1).... 76,008
</TABLE>
------------
(1) Weighted average common shares and units outstanding are computed including
dilutive options, unvested stock grants, and assuming conversion of Series A
Preferred Stock to Common Stock.
8. TREASURY STOCK REPURCHASE PROGRAM
On January 4, 2000, FelCor announced that its Board of Directors had
approved a stock repurchase program, authorizing the Company to purchase up to
an aggregate of $200 million of its outstanding common shares. During the six
months ended June 30, 2000, FelCor had repurchased approximately 3.1 million
shares of FelCor common stock for approximately $56.7 million.
F-59
<PAGE> 194
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. BASS STOCK CONTRIBUTION
In connection with the efforts of Bass to acquire Bristol, a Bass
subsidiary (Bass America, Inc.) contributed 4,713,185 outstanding FelCor common
shares held by it to the Operating Partnership in exchange for a like number of
units of limited partnership interest on February 28, 2000. This exchange did
not affect the Company's FFO or earnings per share, although it resulted in
reducing FelCor's percentage ownership in the Operating Partnership from
approximately 95% to approximately 88%. The shares were recorded in treasury at
$17 per share which represented fair market value on date of exchange ($80.1
million) and increased minority interest in the Operating Partnership for a like
amount.
10. BUYBACK OF ASSUMED STOCK OPTIONS
In the second quarter of 2000 the Company purchased options covering an
aggregate of 349,443 shares of FelCor's Common Stock for approximately $1.9
million. The options were held by employees of Bristol Hotels & Resorts and were
issued in substitution for stock options previously granted by Bristol Hotel
Company that were outstanding at the time of its merger with FelCor in 1998. The
options so purchased and retired had exercise prices ranging from $10.33 to
$16.95 per share and the majority of these options were scheduled to vest in the
third quarter of 2000.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the three and six months ended June 30, 2000 and
1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE JUNE
------------------ ------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) applicable to
common shareholders............. $(35,074) $34,638 $(22,331) $65,201
Denominator:
Denominator for basic earnings per
share -- weighted average
shares.......................... 54,714 68,013 56,930 68,011
Effect of diluted securities:
Stock options................. 273 271
Restricted shares............. 231 65 231 65
-------- ------- -------- -------
Denominator for diluted earnings
per share -- adjusted weighted
average shares and assumed
conversions..................... 54,945 68,351 57,161 68,347
======== ======= ======== =======
Earnings (loss) per share data:
Basic.............................. $ (0.64) $ 0.51 $ (0.39) $ 0.96
Diluted............................ $ (0.64) $ 0.51 $ (0.39) $ 0.95
</TABLE>
The Series A Preferred Shares and most of the options granted are
anti-dilutive and not included in the calculation of diluted earnings per share.
F-60
<PAGE> 195
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS
On July 14, FelCor entered into a binding sale contract to sell its Embassy
Suites hotel, Los Angeles International Airport-North, California (215 suites)
for a gross price of approximately $24 million. The Company expects the sale
will close by the end of August 2000, and result in a gain on sale of
approximately $3 million, in the third quarter of 2000. This hotel is not
included in the 25 hotels held for sale.
On July 21, 2000, FelCor's Independent Directors approved the acquisition
of 100% of DJONT effective January 1, 2001. The purchase price is approximately
417,000 units of the Operating Partnership.
On August 1, 2000, FelCor renewed its Line of Credit. The Line of Credit
was reduced from $850 million to $600 million and the maturity was extended from
July 2001 to August 2003. The effective interest rate ranges from 87.5 basis
points to 250 basis points above LIBOR depending on the Company's leverage and
corporate rating.
On September 15, 2000, the Company completed the private placement of $400
million in aggregate principal amount of its long-term senior unsecured notes.
The notes bear interest at 9 1/2% per annum, mature in 2008, and were priced at
98.633% to yield 9 3/4%.
F-61
<PAGE> 196
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000, AND
THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 2000, the twelve months ended June 30, 2000, and
the year ended December 31, 1999 is based in part upon the Consolidated
Statements of Operations of FelCor Lodging Trust Incorporated ("FelCor") for the
six months ended June 30, 2000 and the year ended December 31, 1999 included or
incorporated by reference herein.
The Pro Forma Consolidated Statements of Operations for the six months
ended June 30, 2000, the twelve months ended June 30, 2000, and the year ended
December 31, 1999 assume that all the following occurred on January 1, 1999: (i)
the issuance of $400 million of senior unsecured debt (ii) the completion of the
other financing transactions which occurred in 2000, (iii) the repurchase by
FelCor of $164.3 million of its common stock through August 31, 2000, and (iv)
the sale of 25 non-strategic hotels identified in the second quarter of 2000.
In management's opinion, all material adjustments necessary to reflect the
effects of the foregoing transactions have been made. The following unaudited
pro forma consolidated statements of operations are not necessarily indicative
of what the actual results of operations of FelCor would have been assuming such
transactions had been completed as of January 1, 1999, nor do they purport to
represent the results of operations for future periods.
F-62
<PAGE> 197
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000, AND
THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEBT TRANSACTIONS
AND STOCK
REPURCHASE SENIOR
FELCOR COMPLETED THROUGH SALE OF UNSECURED
HISTORICAL AUGUST 31, 2000 25 HOTELS DEBT PRO FORMA
THE SIX MONTHS ENDED JUNE 30, 2000 (A) (B) (C) (D) TOTAL
---------------------------------- ---------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue......... $256,335 $(11,232) $245,103
Equity in income of
unconsolidated entities........ 5,648 5,648
Other revenue.................... 2,687 2,687
-------- -------- --------
Total revenue............. 264,670 (11,232) 253,438
-------- -------- --------
Expenses:
General and administrative....... 6,112 -- 6,112
Depreciation..................... 81,480 (3,668) 77,812
Reserve for assets held for
sale........................... 63,000 (63,000)
Taxes, insurance and other....... 35,877 (1,687) 34,190
Land leases...................... 11,711 (21) 11,690
Interest......................... 77,644 $ 2,350(E) (5,359) $ 2,221(F) 76,856
Minority interest in FelCor
Operating Partnership.......... (2,399) 5,696(G) 3,297
Minority interest in other
partnerships................... 2,093 2,093
-------- ------- -------- ------- --------
Total expenses............ 275,518 8,046 (73,735) 2,221 212,050
-------- ------- -------- ------- --------
Net income (loss) before
nonrecurring item................ (10,848) (8,046) 62,503 (2,221) 41,388
Gain on sale of land............... 875 875
-------- ------- -------- ------- --------
Net income (loss).................. (9,973) (8,046) 62,503 (2,221) 42,263
Preferred dividends................ 12,358 12,358
-------- ------- -------- ------- --------
Net income (loss) applicable to
common shareholders.............. $(22,331) $(8,046) $ 62,503 $(2,221) $ 29,905
======== ======= ======== ======= ========
Diluted per common share data:
Net income applicable to common
shareholders..................... $ (0.39) $ (0.54)
======== ========
Weighted average common shares
outstanding -- diluted........... 57,161 (1,501)(H) 55,660
======== ======= ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-63
<PAGE> 198
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000, AND
THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEBT
TRANSACTIONS
AND STOCK
FELCOR FELCOR REPURCHASE
SIX MONTHS SIX MONTHS COMPLETED SALE OF SENIOR
ENDED ENDED THROUGH 25 UNSECURED
THE TWELVE MONTHS ENDED JUNE 30, JUNE 30, DECEMBER 31, AUGUST 31, HOTELS DEBT PRO FORMA
2000 2000(A) 1999(A) 2000(B) (C) (D) TOTAL
-------------------------------- ---------- ------------ ------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue..... $256,335 $234,011 $(21,967) $468,379
Equity in income of
unconsolidated entities.... 5,648 4,647 10,295
Other revenue................ 2,687 3,239 5,926
-------- -------- -------- -------- ------- --------
Total revenue.......... 264,670 241,897 (21,967) 484,600
-------- -------- -------- -------- ------- --------
Expenses:
General and administrative... 6,112 4,369 10,481
Depreciation................. 81,480 78,786 (7,193) 153,073
Reserve for assets held for
sale....................... 63,000 (63,000)
Taxes, insurance and other... 35,877 27,200 (3,213) 59,864
Land Leases.................. 11,711 9,073 (45) 20,739
Interest..................... 77,644 66,263 $ 10,551(E) (10,556) $ 6,023(F) 149,925
Minority interest in FelCor
Operating Partnership...... (2,399) 1,857 5,195(G) 4,653
Minority interest in other
partnerships............... 2,093 1,074 3,167
-------- -------- -------- -------- ------- --------
Total expenses......... 275,518 188,622 15,746 (84,007) 6,023 401,902
-------- -------- -------- -------- ------- --------
Net income (loss) before
nonrecurring item............ (10,848) 53,275 (15,746) 62,040 (6,023) 82,698
Gain on sale of assets......... 875 236 1,111
-------- -------- -------- -------- ------- --------
Net income (loss).............. (9,973) 53,511 (15,746) 62,040 (6,023) 83,809
Preferred dividends............ 12,358 12,367 24,725
-------- -------- -------- -------- ------- --------
Net income (loss) applicable to
common shareholders.......... $(22,331) $ 41,144 $(15,746) $ 62,040 $(6,023) $ 59,084
======== ======== ======== ======== ======= ========
Diluted per common share data:
Net income applicable to common
shareholders................. $ (0.39) $ 1.03
======== ========
Weighted average common shares
outstanding --
diluted...................... 57,161 66,803 58(H) 57,219
======== ======== ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-64
<PAGE> 199
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
THE TWELVE MONTHS ENDED JUNE 30, 2000, AND
THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEBT TRANSACTIONS
AND STOCK
REPURCHASE SENIOR
FELCOR COMPLETED THROUGH SALE OF UNSECURED
HISTORICAL AUGUST 31, 2000 25 HOTELS DEBT PRO FORMA
THE YEAR ENDED DECEMBER 31, 1999 (A) (B) (C) (D) TOTAL
-------------------------------- ---------- ----------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue....... $490,893 $(23,116) $467,777
Equity in income of
unconsolidated entities...... 8,484 8,484
Other revenue.................. 4,624 4,624
-------- -------- --------
Total revenue........... 504,001 (23,116) 480,885
-------- -------- --------
Expenses:
General and administrative..... 9,122 9,122
Depreciation................... 152,948 (6,765) 146,183
Taxes, insurance and other..... 59,572 (3,256) 56,316
Land Leases.................... 17,558 (42) 17,516
Interest....................... 125,435 $ 16,922(E) (10,145) $ 9,215(F) 141,427
Minority interest in FelCor
Operating Partnership........ 4,696 (674)(G) 4,022
Minority interest in other
partnerships................. 2,713 2,713
-------- -------- -------- ------- --------
Total expenses.......... 372,044 16,248 (20,208) 9,215 377,299
-------- -------- -------- ------- --------
Net income before nonrecurring
item........................... 131,957 (16,248) (2,908) (9,215) 103,586
Gain on sale of assets........... 236 236
-------- -------- -------- ------- --------
Net income....................... 132,193 (16,248) (2,908) (9,215) 103,822
Preferred dividends.............. 24,735 24,735
-------- -------- -------- ------- --------
Net income applicable to common
shareholders................... $107,458 $(16,248) $ (2,908) $(9,215) $ 79,087
======== ======== ======== ======= ========
Diluted per common share data:
Net income applicable to common
shareholders................... $ 1.59 $ 1.34
======== ========
Weighted average common shares
outstanding -- diluted......... 67,581 (8,655)(H) 58,926
======== ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
F-65
<PAGE> 200
FELCOR LODGING TRUST INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000, THE TWELVE MONTHS
ENDED JUNE 30, 2000, AND THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
(A) Represents FelCor's historical results of operations, excluding
extraordinary charges from the write off of deferred financing fees.
(B) Represents adjustment to FelCor's historical results of operations assuming
that (i) the debt transactions completed in 2000, which include placement
of $330.6 million of mortgage debt and renewal of the Company's Line of
Credit and (ii) the $164.3 million repurchase by FelCor of its common stock
through August 31, 2000, had occurred as of January 1, 1999.
(C) Represents the historical results of operations for the 25 non-strategic
hotels that the Company has announced its intent to sell. The reduction in
interest expense reflects the repayment of $5 million in mortgage debt, and
of $131 million borrowed under our line of credit, from the net proceeds of
the sale of the 25 hotels. The interest rate used to calculate the pro
forma interest on the Line of Credit during the periods presented is the
applicable historical rate under the Line of Credit during the periods.
(D) Represents adjustment to FelCor's historical results of operations assuming
the completion of the issuance of $400 million of senior unsecured debt.
(E) Represents pro forma interest expense based on (i) $330.6 million of
mortgage debt borrowed in 2000 and used to pay down the Line of Credit and
(ii) $164.3 million of FelCor's common stock repurchased through August 31,
2000. The interest rates used to calculate pro forma interest expense on
the mortgage debt borrowed in 2000 are the actual rates for the new
mortgage notes, of 8.73% and 8.70%. The rate for the paydown on the Line of
Credit is the historical rate on the Line of Credit during the periods
presented. The interest rate used to calculate pro forma interest on the
$164.3 million stock repurchase is the historical rate on the Line of
Credit during the periods presented adjusted to reflect the August 2000
renewal of the Line of Credit.
(F) Represents pro forma interest expense on the $400 million of senior
unsecured debt after application of net proceeds to repay a $374 million
term loan and to reduce borrowings under the Line of Credit. The interest
rates used to calculate pro forma interest expense are 9.50% for the senior
unsecured debt and historical rates for the term loan and Line of Credit
for the periods presented.
(G) Represents pro forma adjustment to minority interest in the FelCor
Operating Partnership to reflect additional interest expense and the
repurchase of FelCor stock.
(H) Represents the number of shares of FelCor common stock which had been
repurchased through August 31, 2000.
F-66
<PAGE> 201
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
The following unaudited Pro Forma Consolidated Balance Sheet as of June 30,
2000 is based in part on the Consolidated Balance Sheet of FelCor included
herein.
The Pro Forma Consolidated Balance Sheet assumes that the completion of (i)
the $400 million of senior unsecured debt, the subsequent payoff of the $374
million term loan and the reduction of borrowings under the Line of Credit, (ii)
the repurchase by FelCor of $9.2 million of its common stock between July 1,
2000 and August 31, 2000 funded from its Line of Credit and (iii) the sale of 25
non-strategic hotels identified in the second quarter of 2000.
In management's opinion, all material adjustments necessary to reflect the
effects of the foregoing transaction have been made. The following unaudited
consolidated balance sheet is not necessarily indicative of what the actual
financial position would have been assuming such transaction had been completed
as of June 30, 2000, nor does it purport to represent the future financial
position of FelCor.
F-67
<PAGE> 202
FELCOR LODGING TRUST INCORPORATED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FELCOR
HISTORICAL PRO FORMA
(A) ADJUSTMENTS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Net investment in hotels........................ $3,796,755 $3,796,755
Investment in unconsolidated entities........... 133,038 133,038
Assets held for sale............................ 135,647 $(135,647)(B)
Cash and cash equivalents....................... 50,852 50,852
Due from Lessees................................ 28,598 28,598
Note receivable from unconsolidated entity...... 7,728 7,728
Deferred expenses, net.......................... 17,093 8,929(C) 26,022
Other assets.................................... 7,054 7,054
---------- --------- ----------
Total assets.......................... $4,176,765 $(126,718) $4,050,047
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt and capital lease obligations.............. $1,882,743 $(114,050)(D) $1,768,693
Distributions payable........................... 35,237 35,237
Accrued expenses and other liabilities.......... 73,335 73,335
Deferred rent................................... 18,604 18,604
Minority interest in Operating Partnership...... 221,878 (281)(E) 221,597
Minority interest in other partnerships......... 50,710 50,710
---------- --------- ----------
Total liabilities..................... 2,282,507 (114,331) 2,168,176
---------- --------- ----------
Shareholders' equity:
Series A Cumulative Preferred Stock........... 150,765 150,765
Series B Redeemable Preferred Stock........... 143,750 143,750
Common stock.................................. 694 694
Additional paid-in capital.................... 2,078,023 (61)(E) 2,077,962
Distributions in excess of earnings........... (206,783) (3,098)(F) (209,881)
Common stock in treasury...................... (272,191) (9,228)(G) (281,419)
---------- --------- ----------
Total liabilities and shareholders'
equity.............................. $4,176,765 $(126,718) $4,050,047
========== ========= ==========
</TABLE>
See notes to pro forma consolidated balance sheet.
F-68
<PAGE> 203
FELCOR LODGING TRUST INCORPORATED
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED, IN THOUSANDS)
(A) Represents the historical consolidated balance sheet of FelCor as of June
30, 2000.
(B) Represents the pro forma change in assets held for sale to reflect the sale
of 25 hotels.
(C) Represents the estimated costs of the $400 million senior unsecured debt of
$12.4 million which are capitalized and amortized over the term of the debt
after writeoff of unamortized loan costs of $3.4 million associated with
the term loan.
(D) Represents the pro forma change in debt from, (i) placement of $400 million
senior unsecured notes with net proceeds of $388 million used to repay a
$374 million term and the balance used to reduce borrowings under the Line
of Credit, (ii) the repurchase by FelCor of $9.2 million of its common
stock from July 1, 2000 through August 31, 2000 funded from the Line of
Credit, and (iii) the net proceeds of the sale of 25 hotels of $136
million, used to repay $5 million in mortgage debt associated with these
hotels and $131 million to reduce borrowings under the Line of Credit.
(E) Represents the adjustment to reflect the increase in the minority interest
in FelCor LP to 9.93% as a result of the redemption of the partnership
units related to the stock repurchased as discussed in (G) below.
(F) Represents the writeoff of unamortized loan costs of $3.4 million
associated with the term loan repaid net of minority interest.
(G) Reflects the shares repurchased by FelCor from July 1, 2000 to August 31,
2000.
F-69
<PAGE> 204
(This page intentionally left blank)
<PAGE> 205
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DELIVERED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THIS PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL,
HAND DELIVERY OR
OVERNIGHT COURIER:
SunTrust Bank
Attention: George T. Hogan,
Corporate Trust Department
25 Park Place, 24th Floor
Atlanta, Georgia 30303-2900
or
SunTrust Bank
c/o Harris Trust of New York
Attention: Mary Ann Luisi,
Corporate Trust Department
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
or
BY FACSIMILE:
(404) 588-7335 (GA)
or
(212) 701-7648 (NY)
ORIGINALS OF ALL DOCUMENTS
SUBMITTED BY FACSIMILE SHOULD BE SENT
PROMPTLY BY HAND, OVERNIGHT COURIER,
OR REGISTERED OR CERTIFIED MAIL.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSSED IN THIS PROSPECTUS OTHER
THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY
REFERENCE. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE
MATTERS THAT IS NOT DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT
RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO
WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE
DELIVERY OF THIS PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES,
MEAN THAT THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT
ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS
WE INCORPORATE HEREIN BY REFERENCE IS CORRECT AFTER THIS DATE.
---------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/2% SENIOR NOTES
DUE 2008
FOR
REGISTERED 9 1/2% SENIOR NOTES
DUE 2008
FELCOR LODGING
LIMITED PARTNERSHIP
PROSPECTUS
OCTOBER 27, 2000
